WeWorks Settles Investigation of Overbroad Noncompete Restrictions

The office share company WeWork Cos. reached a settlement with attorneys general of New York and Illinois over requiring most employees to sign over-broad noncompete agreements.

The Wall Street Journal, by Eliot Brown, reported that WeWork previously required most employees, including baristas and receptionists, to sign agreements barring them from working at similar businesses for a year after leaving WeWork.

The WSJ further reported that as part of the settlement,

WeWork agreed to release 800 rank-and-file employees in New York and an additional 600 employees nationwide from their noncompetes. A further 1,800 employees nationwide will be given less-restrictive terms on their agreements.

On 9/17/2018, we reported about the FTC and certain Democratic lawmakers calling for significant restrictions over using non-compete restrictions in employment agreements. See FTC Considers Restricting Noncompete Agreements. Those calls to limit employers forcing employees to enter into non-compete agreements go too far, including for the reasons we highlighted in our earlier post.

However, employers like WeWorks that blatantly misuse non-compete restrictions amplify the reasons underlying calls for reform. WeWorks is not alone in its misuse of non-compete restrictions: Jimmy John’s (Jimmy John’s Sued (Again) Over its Noncompete Restrictions) or Law360, Four Take-Aways from an Employer’s Misuse of Overly Broad Noncompete Agreements.

In one of the more egregious misuse cases we’ve handled, the owners of Day Break Salon sued a former stylist claiming a breach of a non-compete agreement. Before beginning her employment with DayBreak, the stylist had paid for her training (over $20,000) and was responsible for building her client base.`

Without considering the questionable circumstances surrounding the end of the employment relationship, at the time Day Break sued, the stylist was pregnant, working from home and a couple of days at another salon until she went on maternity leave in a few months. While the case was eventually dismissed – with no injunction awarded – the legal fees on both sided dwarfed the relief sought.

Will there be limits on the enforcement of non-compete restrictions?

In sum, non-competes have an important and legitimate place in your company’s operations toolbox. But non-compete abuse has become rampant. If employers don’t carefully reconsider how such restrictions are used, the enforcement pendulum may swing so far towards disfavoring non-compete restrictions that there will be no place for using them, legitimate or otherwise.

For more information about drafting, negotiating, or litigation over the enforcement of non-compete agreements, contact non-compete attorney Jason Shinn. Since 2001, he’s worked with both companies and individuals to address legal issues involving post-employment restrictions like non-solicitation and non-compete restrictions.

EEOC Data Shows Increase in Sex Harassment Claims

#MeTooAt the beginning of 2018, we advised our business clients to expect sexual harassment claims to increase. This advice was in response to various high profile sexual harassment claims and the #MeToo Movement against sexual harassment and sexual assault in the workplace.

Consistent with these predictions, it was reported on 9/17/2018 by Chris Opfer for Bloomberg’s Human Resources Report (subscription required) that the Equal Employment Opportunity Commission saw an increase in sexual harassment claims this year as compared with 2016. Notably, this increase occurred as the total discrimination and harassment claims dropped.

According to Bloomberg, this information came from EEOC data, which will eventually become public upon a final verification of the EEOC filings.

Considerations for Sexual Harassment Prevention

In the meantime, employers must continue to recognize that zero tolerance for sexual harassment and assault should be the norm.

But simply saying you have a zero tolerance workplace when it comes to discrimination is not enough. Items employers should consider in developing policies for preventing and defending sexual harassment claims include:

  • An affirmative statement of employers’ commitment to maintaining a workplace free from all forms of harassment and sexual harassment.
  • Having a good Anti-retaliation provision. Harassment and sexual harassment policies should emphasize that anyone who files a complaint about harassment or sexual harassment or is involved in related investigations are protected from retaliation.
  • Meaningful and continued employee training. While training is generally not required under federal law, training can help prevent harassment; and
  • A procedure for a fair and thorough investigation of all complaints.

Contact employment attorney Jason Shinn for more information about best practices for complying with federal and Michigan employment laws, including preventing sexual harassment claims. Since 2001, he has represented clients in claims under Title VII of the 1964 Civil Rights Act, which bans sex, race, religion, and other forms of bias in the workplace.

FTC Considers Restricting Noncompete Agreements

Will the playing field be leveled between employers and employees when it comes to non-compete agreements? Perhaps if anything comes out of the Federal Trade Commission’s (FTC) hearings held last 9/13 and 9/14, which Fair noncompete agreementfocused on how the agency’s competition and consumer protection approaches are working. One area of focus is whether enforcement practices need to be expanded or the law requires changes concerning non-compete restrictions.

Specifically, in advance of the FTC hearings, Federal Trade Commissioner Rohit Chopra released his comments  raising concerns about the use of non-compete agreements:

Take, for example, restrictive noncompete clauses in employment contracts. These agreements prevent employees from working for rival firms for a period of time after they leave. As recent studies show, these agreements – which now cover roughly 60 million Americans – deter workers from switching employers, weakening workers’ credible threat of exit and diminishing their bargaining power. In short, by reducing the set of employment options available to workers, employers can suppress wages.

Mr. Chopra’s comments urged the FTC to write rules defining when non-compete agreements for employees are permissible. His comments also followed a report released by four House Democrats, including Michigan Congresswoman Debbie Dingell, recommending that noncompete agreements be significantly restricted.

The report, The Future of Work, Wages & Labor, made the following observation:

One reason for this decrease in mobility is the increased utilization of non-compete clauses by employers. Firms do this under the premise that they are protecting intellectual property and other key investments, but this claim loses muster when considering the widespread use of noncompete clauses in the low-wage fast food industry. Employers are looking to keep training costs low by minimizing turnover and reducing the need for training, and as such, making labor markets less competitive and suppressing wages. To increase worker freedom and fairness, Congress should … Ban all non-compete clauses in employment contracts, with exceptions for senior executives who possess trade secrets.

(emphasis added).

One reason for the FTC and Congressional Democrats’ concern about the use of post-employment7 restrictions is persistent and slow wage growth. In this regard, Bloomberg, by Toluse Olorunnipa and Sho Chandra, report in Americans Are Making Less Money Despite Trump’s Promises, that,

real wages have remained mostly stagnant despite an expanding economy, record stock prices, soaring corporate profits and a giant deficit-fueled stimulus from Trump’s tax cuts… [But] [i]nflation-adjusted hourly wages dropped 0.2 percent in July from a year earlier, their worst reading since 2012 … They’ve grown at an average 0.3 percent annual pace under Trump overall, compared with 1.1 percent during Barack Obama’s second term.

Compelling evidence for this stagnant wage growth comes from research discussing the outsized influence employers have when it comes to setting wages below traditional market conditions. See Econ 101 No Longer Explains the Job Market, by  which cites to two papers (available by registration and/or subscription); the first by José Azar, Ioana Marinescu, and Marshall Steinbaum; and the second by Efraim Benmelech, Nittai Bergman, and Hyunseob Kim. Both articles provide compelling empirical evidence for why employer created monopolies have stagnated workers’ wages.

Closing Thoughts – Revising Non-compete Law is needed, but not to the extreme proposed.

In our experience, limiting the enforcement of non-compete restrictions should happen, but not to the extreme argued for by the Congressional Report. Limiting non-compete restrictions to only “senior executives” with access to trade secrets is not the answer. First, an executive – senior or otherwise – often has access to a range of information that may not rise to the level of a trade secret. This is also true of non-executives, especially in sales or marketing who rely upon an employer’s confidential information to be successful. And that sort of confidential information would provide an unfair advantage if used by a competitor.

Second and building on the preceding point, misappropriating trade secrets is already unlawful even without a non-compete restriction. But a non-compete provides essential protections not available when it comes to non-trade secret information.

However, non-compete enforcement is too often used for improper purposes. For example, we’ve represented individuals in non-compete disputes making less than $25,000.00 annually. These individuals did not have access to information or the means to engage in unfair competition.

Also, we’ve represented numerous clients in non-compete litigation, especially in disputes with staffing or employee leasing companies, where the former employer targeted the individual for litigation to merely stifle legitimate competition.

For more information about non-compete law and litigation, contact attorney Jason Shinn. He has focused on non-compete law relevant to employers and employees since 2001. His experience includes drafting, negotiating such agreements and litigating disputes in Federal and Michigan courts, including numerous preliminary injunctions.

Michigan “Bans-the-Box” for State Job Applicants

employment applicationMichigan Gov. Rick Snyder will sign an executive order “banning the box” on state job applications. This order applies only to State Agencies and does not extend to private sector employers.

NPR reported on 9/7/2018 that the order goes into effect on October 1, 2018, and will prevent state departments from using an application check box to ask job seekers if they’ve been convicted of a felony. A criminal history review could still happen later in the hiring process, state departments cannot use criminal history as an initial screen for applicants.

What are “ban-the-box laws” about?

Laws “banning the box,” are aimed at helping formerly convicted felons return to the workforce by delaying the point in time during the hiring process when an employer may ask applicants about their criminal history. The banned “box,” refers to the one an applicant must check on the initial application disclosing prior criminal history, e.g., “Have you ever been convicted of a crime?” Generally, employers often automatically discard applications when the “yes” box is checked, hurting certain groups of applicants in a discriminatory way.

Additionally, Gov. Snyder has directed the Michigan Department of Licensing and Regulatory Affairs remove all criminal history questions from licensing applications, unless required under state or federal law. Instead, applicants — primarily in skilled trades professions that require occupational licenses — will instead be asked to attest to their ability to serve the public and their rehabilitation from any former offenses.

What does a ban on the box mean for your business?

For Michigan private sector employers, this executive order will not affect your recruiting and hiring practices.

However, beginning with Hawaii in 1998, many states, cities, and counties have adopted ban-the-box policies that may extend to private employers. So multi-state employers should consult with their employment attorney to navigate the national patchwork of ban-the-box laws.

Additionally, with a tight labor market, employers are may find it difficult filling positions without expanding the applicant pool. Consequently, it may be necessary to expand the pool of potential job applicants to include those with criminal convictions. If so, it would be prudent to identify specific job duties and compare them to an applicant’s specific criminal history. With this comparison, employers will be better able to assess the potential risks of hiring an applicant with a prior conviction.

If you would like more information about complying with employment recruiting and hiring laws or to evaluate whether you must revise your existing employment application to remove any questions related to criminal history, contact employment attorney Jason Shinn. He has collaborated with employers since 2001 to address federal and Michigan employment law matters, and successfully litigated claims under both.

Litigating the Breach of a Non-Compete Agreement – A View From the Trenches

non-compete agreementOn July 2, 2018, we defended against a motion for a preliminary injunction on behalf of our clients. Our clients were sued for allegedly breaching their non-compete agreements with their former employer and related claims.

As is often the case in non-compete litigation, numerous factual and legal issues were up for grabs when it came to obtaining injunctive relief. See What Happens When a Noncompete Agreement is Violated? A Blueprint for Noncompete Litigation. And how these matters were ultimately resolved provides critical insights for employers and individuals involved in these disputes.

Background of the Lawsuit

The Plaintiff, an insurance agency, tried to enforce its non-compete agreements against two former sales agents. One non-compete agreement prohibited the agent from working for or as a competitor within Michigan; the other banned the agent from the same, but it was limited to a 65-mile radius from Plaintiff’s office. Both non-compete restrictions broadly extended to any insurance products, rather than limited to particular lines (e.g., auto, life, property, casualty, hazard, and business).

There was no serious dispute that if the non-compete agreements were enforced per their express terms that the Defendants’ business would be shut-down; their business marketed and sold insurance products in Michigan, and it was located within miles of their former employer’s office.

Lessons from the Preliminary Injunction Hearing.

So with this backdrop, here are a few insights to consider:

  • The first point, employers must properly draft and take care in handling the circumstances leading up to ending the employment relationship and enforcing a non-compete agreement. Here, among the points we successfully argued was that the state-wide ban was overbroad and, therefore not reasonable. The best evidence for this argument was the Plaintiff’s other, less restrictive non-compete restriction limiting competition within 65 miles of its office. Also, the Plaintiff had classified Defendants as “independent contractors,” not employees, which has significant legal consequences when it comes to enforcing non-compete restrictions under Michigan law.
  • Second, before leaving your employer to start a competing company or to join a competitor, understand what, if any non-compete restrictions or other obligations you may have. Simply put, it makes no sense to invest in starting a new business or joining a new company only to discover such actions are contractually prohibited.
  • Third, while noncompete agreements are enforceable in Michigan and other states if specific threshold requirements are met, judges have broad discretion in determining what that enforcement will ultimately look like. Here, our defense was admittedly aided by an experienced judge (Hon. Christopher P. Yates) who took the time to understand the factual and legal issues, the business interests in the matter, and how the competitive interests affected consumers. Unfortunately, not all judges will take such a reasoned approach or conduct the analysis beyond whether a non-compete agreement was entered into by the parties.

Returning to our case, while the judge entered injunctive relief, it was significantly less restrictive than what the Plaintiff sought or that was required under the non-compete agreements. For instance, Defendants could continue operating their business at its current location, which was just miles from Plaintiff’s office. Further, Defendants could market and sell a broad array of insurance products, except for a single insurance product Plaintiff described as a niche product it specialized in.

But even this restriction was limited to a 65-mile radius from Plaintiff’s office with a “big” lake comprising a large portion of this restricted geography. Thus, Defendants could sell Plaintiff’s niche product as long as it was selling to customers outside of the 65-mile radius.

This suit is not over, but this result makes for a good foundation to build upon. This is because non-compete lawsuits often turn on the success or failure at the preliminary injunction phase. Here, after the litigation dust settled, Plaintiff was left with far less than what the express language of its non-compete agreements provided. And Defendants were left with restrictions they could work with while the litigation continues.

For more information about this article, drafting noncompete agreements or litigating the breach of a non-compete restriction, contact Attorney Jason Shinn.

Since 2001, Jason has worked with companies and individuals in addressing non-compete law. This experience includes representing companies pursuing breaches of their post-employment restrictions and individuals sued for allegedly breaching their noncompete obligations.

Two Metro Detroit Employers Settle with DOL Over FLSA Violations

Independent Contractor Misclassification Two Metro-Detroit employers have recently agreed to settle wage and hour violations under the Fair Labor Standards Act (FLSA) involving overtime compensation and misclassification issues.

Specifically, Belle Tire agreed to pay over $340,000.00 for violations under the FLSA. Payments will be made to employees in approximately hundred stores in Michigan, Indiana, and Ohio.

According to the Department of Labor Department (DOL), this settlement arose out of a DOL investigation, which concluded that Belle Tire “failed to include incentive bonuses and sales commissions” in calculating overtime pay to its employees. According to a DOL statement, because of failure, 1,207 employees were incorrectly paid time-and-a-half of only their base rates, “without considering the amounts by which these bonuses and commissions had boosted employees’ straight-time earnings.”

Timolin Mitchell, the DOL’s wage and hour District director in Detroit noted in the DOL’s April 30, 2018 press release that Belle Tire cooperated throughout the investigation and will implement plans to address compliance with overtime requirements. He further noted in the DOL’s statement,

Wage violations can be avoided when employers understand the requirements under federal labor law. Belle Tire is now training its store managers, supervisors, and payroll personnel to ensure they compute overtime properly and employees receive the wages they have rightfully earned.

Also on April 30, the DOL announced a settlement with Summit Properties & Development Co. Inc., based in Clarkston, Michigan. Under the DOL agreement, Summit Properties will pay $137,237 in back wages and liquidated damages to 17 employees.

DOL investigators determined the general contractor misclassified certain employees as independent contractors and failed to pay them overtime when they worked over 40 hours in a workweek. Summit Properties also agreed to revise its employee handbook and all future subcontractor agreements to help educate those employers about compliance with the FLSA.

What should companies take-away from FLSA Violations?

Our firm was not involved in the DOL investigation and matters leading up to the violation. However, having represented Belle Tire in employment litigation and in getting to know its general counsel, it is definitely a company that prides itself on “doing the right thing.” And it appears the violations found by the DOL are an honest mistake rather than willfulness by the company.

Even so, these settlements illustrate the truism ignorance of the law is no excuse for non-compliance. Yet, mistakes involving wage and hour and misclassification issues our areas where employers most often misunderstand their legal obligations.

For more information about complying with the federal FLSA or other employment laws, contact employment attorney Jason Shinn.

Age Discrimination Suit Because Job Posting Asked for “No More Than ‘X’ Years of Experience”

If your company’s job postings seek applicants with a cap on the years of experience then you may also be advertising for an age discrimination lawsuit. At least that is a take away from a Seventh Circuit Court of Appeals decision involving a suit under the Age Discrimination in Employment Act (ADEA).

The case, Kleber v. CareFusion Corp. involved a 58-year-old attorney who alleged he was denied a chance to interview for a job because he had too much experience. The job posting specifically provided “3 to 7 years (no more than 7 years).”

Generally, the ADEA prohibits employment practices that discriminate intentionally against older workers and prohibits employment practices with a disparate impact on older workers. 29 U.S.C. § 623(a)(1).

The Court framed the central issue in this case as to whether the disparate impact provision of the ADEA protects only current employees or whether it protects current employees and outside job applicants. The Court concluded that because the ADEA was enacted to prohibit job practices that make it more difficult for older workers to find jobs the district court was wrong to grant the employer’s motion (a 12(b)(6) motion for the procedural nerds out there) dismissing the plaintiff’s disparate impact claim.

Age Discrimination and Your Job Postings.

There are legitimate reasons for a company to seek applicants with less experience. For example, CareFusion explained it was worried an attorney with over seven years’ experience wouldn’t stay in the job for long.

But such concerns should not adversely affect applicants over 40. Here the employer’s use of an express cap on an applicant’s experience (i.e., “no more than 7 years”) provided enough evidence that CareFusion’s job requirements had a disparate impact on qualified job seekers over the age of 40.

This decision means employers must critically evaluate whether the job in hiring requirements consider workers 40 or over. Otherwise, failing to do so may expose the company to age discrimination claims under federal or state laws.

Does this Issue Get Taken up by the U.S. Supreme Court?

This decision also creates a divide among other federal circuits over whether the ADEA protects job applicants and not only existing employees from facially neutral employment policies that may have unanticipated but unequal consequences.

Whether this circuit split makes its way up to the U.S. Supreme Court is uncertain. But if I was a betting man, I would say yes. The Supremes has twice addressed issues about disparate impact age discrimination. And it presents a classic statutory interpretation issue.

As to the interpretation issue, the plain language of the ADEA does not expressly extend unintentional hiring bias protections to job applicants. But the majority opinion noted there was no “plausible” policy reason for why Congress would have provided less protection against hiring bias to external applicants than it does to internal job seekers.  While that may be true, using that sort of judicial reasoning to reach a result not found in the express language of the statute is a favorite target for certain Supreme Court Justices.

For more information about complying with federal and Michigan employment laws, contact employment attorney Jason Shinn. Since 2001, Mr. Shinn has worked with clients with their employment law and litigation matters.

Michigan Employer Did not Violate Family Medical Leave Act by Investigating Employee Conduct

Managing risksOften when an employee exercises rights under federal or Michigan laws, any subsequent discipline becomes the first domino in a subsequent retaliation claim. But a recent appeal from a Michigan federal district court shows that does not have to be.

Specifically, in Groening v. Glen Lake Cmty. Schools, the plaintiff, a school superintendent, claimed that she was constructively discharged in relation to taking leave under the Family Medical Leave Act (FMLA).

As we’ve explained in prior blog posts (Understanding Family Medical Leave Act Claims – One Statute, Two Possible Claims), an employer may violate the FMLA in one of two ways: (1) retaliating against an employee for exercising rights under the FMLA; and interfering with FMLA rights. Here, the plaintiff claimed her FMLA rights were violated under both theories.

Plaintiff essentially argued the defendant school district’s board members expressed concerns about her leave, conducted an audit designed to find evidence of wrongdoing, and was critical of her performance.

However, the court easily dispensed with both FMLA claims. The opinion goes through a lengthy explanation on why the evidence did not support plaintiff’s claim she was constructively discharged. In sum, plaintiff did not show her working conditions were objectively intolerable and that the school district deliberately created those conditions hoping she would quit.

On the remaining allegations plaintiff used to support her FMLA claim, here are key quotes for HR and managers to remember for evaluating potential employment law claims:

… this circuit has repeatedly held that an employer’s criticism of an employee does not amount to constructive discharge—especially when the employer’s criticism is limited to a few isolated incidents, as it was here.

* * *

… employers are permitted to investigate their employees for wrongdoing, including wrongdoing related to protected leave.

Plaintiff also failed to show that the school board required her to work while she was recovering from surgery. The one instance where the board initiated contact with her, to request a breakdown of her time off, was a de minimis request that did “not rise to the level of actionable interference.”

Thus, the Court affirmed the district court’s grant of summary judgment to the school district on plaintiff’s FMLA violation claims.

Employment Law Compliance Does not Require Suspending Workplace Rules

All too often when an employee exercises rights under various federal or Michigan employment laws, employers feel handcuffed in disciplining or taking other adverse action against the employee. This concern – rightly so – stems from later being accused of retaliating or interfering with an employee’s rights.

However, the above case illustrates that employment law rights are not intended to insulate employees from nondiscriminatory workplace rules and operational decisions. Even so, it is important to carefully evaluate how your company treats and discipline employees who have made requests for FMLA leave or exercise rights under other employment laws to successfully defend against subsequent claims of retaliation or interference.

For more information about complying with federal or Michigan employment laws, contact attorney Jason Shinn. Since 2001, Mr. Shinn has worked with clients to comply with and litigate employment law disputes.

Michigan Municipalities Barred from Regulating Salary History Questions in Job Interviews

Wage discriminationMichigan municipalities won’t be able to enact local legislation championed as one way to eliminate the wage gap between men and women under a bill heading to Gov. Rick Snyder.

Specifically, legislation (SB No. 353) restricts municipalities from regulating what information employers must request, require or exclude during job interviews passed the Republican-controlled House on Wednesday. This law includes questions about an applicant’s salary history. It cleared the Michigan GOP-controlled Senate months ago.

The Detroit Free Press reported it was sent to Gov. Rick Snyder on March 8 for his expected signature. However, his office noted as of this morning the Governor had yet to be presented the Bill. Perhaps the optics of signing a bill restricting the enactment of legislation intended to combat gender-based wage gaps on the same day as International Women’s Day contributed to the delay.

Current Michigan Employment Law

State law already prohibits local rules on what information is required or excluded in job applications. But the Bill amends that law to extend those restrictions to the interview process. The current law and proposed amendment (in all caps and bold font) reads:

A local governmental body shall not adopt, enforce, or administer an ordinance, local policy, or local resolution regulating information an employer or potential employer must request, require, or exclude on an application for employment OR DURING THE INTERVIEW PROCESS from an employee or a potential employee. This section does not prohibit an ordinance, local policy, or local resolution requiring a criminal background check 8 for an employee or potential employee in connection with the receipt of a license or permit from a local governmental body.

While there are no local governments in Michigan are considering ordinances regulating job interviews, the preemptive legislation is an obvious response to limit interview questions about salary history. Critics argue such questions perpetuate gender-based wage gaps.

In this regard, in 2016 Massachusetts was the first state to pass a law preventing employers from asking job candidates about their salary, including Oregon, Delaware, California, and New York City. Numerous states and cities followed by passing similar legislation banning salary history compensation as a means to close the wage gap between men and women and minorities.

What this means for employers and the wage gap

The Michigan Chamber of Commerce and other business organizations supported the legislation.  From an employer’s perspective, asking about someone’s past or current salary is a standard business practice. And (assuming the Bill is signed), local government regulations can’t be enacted to interfere with that practice. It also avoids employers having to navigate a patchwork of local government regulations with the hiring process.

But, prohibiting an employer from asking about salary history could even the playing field for those who have experienced compensation gaps. On this point, a study from the American Association of University Women found the pay gap between men and women begins at college graduation (even for the same degrees). And this discrepancy leads, on average, to women working full time receiving only about 80 cents for every dollar a full-time male worker earns.

What’s your experience or thoughts, whether it is based on hiring or interviewing, with salary history questions?

Jason Shinn is a Michigan employment law attorney. He routinely advises business clients about workplace legal issues. Since 2001, he has focused on companies and HR professionals to comply with federal and Michigan employment laws, and defending against alleged violations of such employment laws.

Learning From a Trade Secret Misappropriation Suit Against Former Employees

A trade sMisappropriationecret misappropriation lawsuit was filed on March 3, 2018 (Bankers Life and Casualty Co. v Knox) against two former employees. The suit, among other issues, raises two points important to individuals looking to start a new business and for business owners interested in protecting their company’s competitive interests.

The plaintiff, Bankers Life, provides seniors with various insurance and financial products. The defendants are two former high-ranking managers (Knox and Prior). They worked in Bankers Life’s Lansing and Ann Arbor offices. It claims while employed, both Knox and Prior were working together to: (a) recruit others in their office to join them in leaving for a competitor and (b) they download policyholder information to use once they joined the competitor.

Bankers Life asserted this downloading of policyholder information violated the individual Defendants’ contractual agreements with it, the Federal Defend Trade Secrets Act, and the Michigan Uniform Trade Secrets Act. However, the lawsuit filed in Michigan federal court is limited to the request for emergency injunctive relief to retrieve misappropriated policyholder information and attorneys’ fees and costs for such retrieval. Bankers Life is pursuing a separate arbitration claim against the defendants for breaches of fiduciary duty and breach of contractual prohibitions against inducing employees and agents to leave Bankers Life.

Starting or Joining a Competing Business – Beware of Digital fingerprints

I’ve represented clients in pursuing or defending against trade secret misappropriation claims since 2001. Based on this experience, one of the first areas of investigation is whether there are any “digital fingerprints” to evaluate in relation to the misappropriation. On this topic, assume any files, databases, emails, client lists, CRMs, etc. that were alleged to have been misappropriated will leave digital evidence. This is true whether the misappropriation involved copying, downloading, thumb drives, file transfers, or forwarded emails.

For instance, in the Bankers Life case, it attached to the complaint various reports. It claimed that the reports showed defendants downloaded policyholder information shortly before they departed. There may be competing explanations for why company information was accessed. But the first step in supporting your narrative should be to understand the digital landscape.

Protecting Your Company’s Competitive Interests – Arbitration, Courts, or Both?

Another point this case raises is the use of arbitration or courts in resolving disputes. Here, Bankers Life had agreements that called for arbitration. However, and this is not uncommon, the arbitration provisions carved out proceedings for injunctive relief. So, as is the case here, you end up pursuing parallel claims that originate from overlapping facts.

First, pursue claims in court and in arbitration multiplies costs, e.g., filing fees, court/arbitration submissions, hearings, etc. There may be compelling reasons to incur dual costs or not. But before doing so, companies should evaluate whether it makes sense.

In this regard, in my professional experience arbitration has lost some advantages over court proceedings. And both sides in typical trade secret dispute are better served with a more precise and tailored resolution procedure than simply throwing the entire dispute into arbitration or relying exclusively on court proceedings.

Second, imprecisely drafted contracts can cause disputes over what is subject to arbitration, e.g., suit for the return of company property versus claim for arbitration of “any and all” disputes between the parties. And a judge may simply kick the entire matter into arbitration for resolution if there are contractual ambiguities. So make there are no surprises lurking in your company’s agreements when it comes to dispute resolutions involving arbitration or court proceedings.

For more information about protecting or defending against trade secret claims, contact attorney Jason Shinn. Since 2001 he has collaborated with business owners to create policies and procedures for protecting company confidential information. He has also litigated in federal and Michigan courts misappropriation claims under Michigan and the Federal Defend Trade Secrets Act. Mr. Shinn also frequently writes about trade secret issues important to business owners.

LexBlog