When times are good, bad people are bad

It’s 8 o’clock on Saturday morning, and a man carrying two suitcases walks jauntily into the lobby of an office building. He approaches the security desk and presents his credentials to the watchman on duty, and signs the register to go to his office. The watchman issues a pass, and the man, swinging the suitcases lightly, enters the elevator.

At 4 o’clock in the afternoon the doors to the elevator open in the building lobby, where the same watchman is still on duty. The man who had signed in that morning emerges carrying the two suitcases, his shoulders sagging. He walks slowly to the security desk and with a deep sigh, he sets the suitcases down and signs the register, noting his departure time in the appropriate column.

On the following Monday he arrives at the office and tells his employer that he is quitting. He says that he is going to go first on a long-deserved vacation and then back to his original occupation, as he has tired of recruiting.

The following Sunday an advertisement appears in the classified section of the newspaper announcing the opening of his new recruiting office. And on Monday he is on the telephone calling clients and candidates with whom he had contact in his previous employment.

At the hearing for a preliminary injunction, the watchman testifies that he observed the man enter in the morning, swinging the suitcases easily, and then leave in the evening, struggling with what were apparently full suitcases. The court inferred that the man had taken copies of résumés and carried them out in the two suitcases. The preliminary injunction against their use was granted.

Leaving a Trail

Across town, three people gather together and decide to leave their employer and go into a competing recruiting business. They wait for the Christmas holiday, while their boss is out of town, and give notice that they are quitting. They set up shop and start calling candidates and companies with whom they did business while working for their previous employer. They place a candidate with whom they previously worked, with a company that just gave their previous employer the same job order.

The previous employer sues for the fee that the three employees collected, and at the trial, the employees testify that they did not take any files or résumés when they left their prior employment. When queried as to how they came to call candidates with whom they had dealt, they say that they remembered their telephone numbers and that they were friends.

The court awards the fee to their previous employer. They stop making calls to candidates they knew of from that prior employment.

A Farewell Message

It was the night before Christmas, so the poem goes, and all is quiet throughout the house. The same is true at the office of the recruiter who has already given notice that he is leaving at the end of the week just before Christmas. When all of his fellow employees are gone, he enters his password into the computer and accesses the list of candidates with whom he has been working for the last couple of years, 400 in all. All he does is copy their email addresses, nothing more, and makes a printout. It takes about an hour.

In January, at his new employment he emails all of these candidates, telling them where he is now located. He calls one candidate in particular to discuss a potential new job at a company with whom the recruiter did business while at his old employment and knew about from that time. The placement is made and his new employer collects a six-figure fee.

When the old employer learns of that, a lawsuit is filed against the new employer and the former employee. When the computer is checked, a special program provides exact information of when the employee accessed it, how long he was on it, and precisely what he downloaded and printed. The case was settled before trial.

Trade Secrets: Are They Secret?

These three stories are true legal cases, three of many more that could be told about in this article. They are typical of what has been happening in the recruiting profession from time immemorial. And it is likely this will continue as new people enter into the occupation and then decide to strike out on their own, using confidential information that they acquired while employed. They will then take all or part of a database full of résumés of potential candidates that have been identified as such at great expense and time. And taking the information is easier today than ever before because of the use of the computer and the storing of information in a format that is so easily accessible and transferable.

A long time ago (and sometimes even today), depending on where you are in the country, courts did not understand recruiting, and why the information about candidates for employment represented an important asset of the recruiting company, and that it was not otherwise available in any public documents or source. But today, enough case law has developed that clearly confirms that the information gathered by recruiters about potential candidates for employment constitutes confidential information and therefore is a trade secret deserving of protection by the courts against improper taking by an employee.

Close the Barn Door Now

Article Continues Below

Recruiting-company employers have displayed a tendency over the years to not take precautions to protect the most valuable asset that they possess: the database of identified candidates. Enormous amounts of time and energy, and certainly money, have been invested in creating this enormous stockpile of information that is not otherwise available to anyone else from public sources.

While you have to depend on the honesty and integrity of recruiters not to take what is not theirs when they leave to compete, whether on their own or with another employer, it is prudent to put certain systems in place so as to at least be able to demonstrate to a court what has been taken, by whom, and when. In the days when we did not have computers and all records were paper, we depended on having résumés and making copies when needed. Copying machines were the first electronic advance that made a difference in recruiting. The fax machine was next; then came the computer.

One way of checking up on whether an unusual number of copies were made at any one time was to check the counter at night, when the office was closed, and again in the morning to see what use may have been made in the interim. Then find out who stayed late the night before. Today we do not have to do that; computers can be programmed to give exact information of their use at any time. Not to take advantage of that ability is foolhardy, given what is at stake. In some states, if a password is required to access a computer, it constitutes a crime to do so without permission or authority.

Is a Trade Secret, Secret?

There are two elements to a trade secret that make it a trade secret: the information is not generally available, and the information is treated as secret. In the case of the database of identified candidates, the first element is satisfied by the fact that there is no other such list available to the public. The second element is provided by treating it as a secret. To do so, access must be limited to only those who must use it in their daily employment activity. In addition, and most important, it needs to be made clear to all employees that the information is a trade secret and it must be maintained as such; that its use otherwise would be a violation of the employee’s fiduciary responsibility; and that any violation of its integrity will be met by legal action to restrain its unlawful use.

In some states, where restrictive covenants against unfair competition by former employees are enforceable, contracts with such a provision are utilized. But in all states, the common law of an employee’s fiduciary obligation of good faith to act with honesty and loyalty to one’s employer can be used to enforce protection of an employer’s trade secrets. In fact, even where restrictive covenants are used, their enforcement is predicated on protecting a trade secret that could not otherwise be protected. Enforcing the fiduciary responsibility can do the same.

Conclusion

1. Make it clear to all employees that the database of identified candidates constitutes a trade secret.
2. Restrict access to the database to only those who use it in the course of their employment.
3. Require a password for access and limit remote access.
4. Insert a program that identifies all users of the database, when and for what purpose, with a permanent record of all such activity. Make sure that any deletions are retained in the backup.
5. Keep the barn door closed.

Note: This article is not intended as legal advice. In all instances the reader is cautioned to consult with legal counsel when utilizing this information. A.B.F.

____________________________

A. Bernard Frechtman, Esq., is the author of “Staffing Industry Law: A Guide for the Personnel Professional.” He can be reached at (212) 580 7402, via email at abflaw@att.net, or on his Web page: http://www.frechtman.com.

A. Bernard Frechtman, Esq. is the author of Staffing Industry Law, A Guide for the Personnel Professional. He may be reached at (212) 580-7402 or via e-mail at abflaw@att.net or on his web page: www.frechtman.com.

This article, the many others that he has written and the contents of his book, are based on his 50 plus years as an active litigator and transactional lawyer, predominately practicing nationwide in the staffing industry. Bernie maintains an active office in New York City while residing in Indianapolis, Indiana, from where he commutes whenever court appearances require it. His representation has included public companies, nationally franchised staffing companies, both state and national staffing industry trade associations, and litigation from the basic fee controversy to the more sophisticated and complicated trade secret, restrictive covenant and contract litigation. He has also served as an expert witness.

Among his many accomplishments is being named by NAPS as its first Hall of Fame Honoree. A graduate of Brown University and St. John's University Law School, where he was a member of the Law Review, Bernie is admitted to practice in the States of New York and Indiana, various Federal District and Circuit Courts and the U.S. Supreme Court.

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