Carrot Stick IncentiveOn May 28, 2021, the Equal Employment Opportunity Commission (EEOC) issued guidance for employers on whether it is legal for companies to require workers to get coronavirus vaccines.  

Vaccine Requirements

In the EEOC’s guidance, the Agency said it is legal for employers to require workers to get coronavirus vaccines, subject only to the reasonable accommodation provisions of Title VII and the ADA and other EEO considerations discussed in the guidance. According to the EEOC, companies can also offer incentives to employees to get vaccinated, as long as the employer does not administer the vaccine.

Reasonable Accommodation Guidance

Regarding reasonable accommodation considerations, there are two situations where these issues could arise under Title VII or the ADA: Reasonable accommodation because of disability or sincerely held religious belief, practice, or observance. 

Undue hardship analysis (at least for now*) differs depending on whether the accommodation is for a disability or religion. It is also important to note that disability issues may include pregnancy-related conditions if they constitute a disability under the ADA. The EEOC provided examples of reasonable accommodations

* The Supreme Court recently declined to hear cases that could have put an additional burden on businesses in religious accommodation cases.  Undue hardship under the ADA means significant difficulty or expense in providing the accommodation. In contrast, undue hardship for religious accommodations is much lower, e.g., an undue hardship is created by an accommodation that has more than a very small cost or burden on the employer (referred to as “de minimis.”). Three Justices, however, want to change this (Samuel Alito, Clarence Thomas, and Neil Gorsuch).

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article or complying with Michigan or federal employment laws. Since 2001, Mr. Shinn has represented companies and individuals concerning the issues discussed above and other employment matters under federal and Michigan employment laws.   

Employee Mask RequirementsToday, MIOSHA updated its COVID-19 Workplace Rules under Gov. Whitmer’s MI Vacc to Normal plan.

The changes, which reflect the recent order from MDHHS and guidance from the CDC, include: 

  • Employers may allow fully vaccinated employees not to wear face coverings and social distance provided they have a policy deemed effective to ensure non-vaccinated individuals continue to follow these requirements. For businesses or operations that provide in-home services, this policy must include accurate appointment records, including date and time of service, name of the client, and contact information, to aid with contact tracing.   
  • The rules were also reformed, focusing on performance, eliminating industry-specific requirements, and updated definitions to more clearly reflect changes in close contact and quarantining requirements for fully vaccinated employees.  
  • Cleaning requirements were updated to reflect changes in CDC recommendations.  

The revised COVID-19 emergency rules are in response to Michigan reaching a 55% vaccination threshold.

MIOSHA also removed the requirement that employers must create a “policy prohibiting in-person work for employees to the extent that their work activities can feasibly be completed remotely.” Employers should continue to have and implement a written COVID-19 preparedness and response plan consistent with these updated rules.  

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article or complying with Michigan or federal employment laws, including COVID-19 regulations. Since 2001, Mr. Shinn has represented companies and individuals concerning the issues discussed above and other employment matters under federal and Michigan employment laws.

A former Toronto Blue Jays pitcher, Michael Bolsinger, sued the Houston Astros for trade secret misappropriation. He claims the Astros violated Texas trade secret law by stealing his team’s pitching signs in an August 2017 game.

Why it matters:

As an attorney who has handled trade secret matters for almost 20 years, this lawsuit is perplexing. But it does offer an overview for discussing the broad application trade secret protections have for a business and where trade secret protections can come up short in business.

The Details:

On August 4, 2017, Bolsinger only pitched a partial inning before giving up 4 runs. This would be the last inning he pitched in MLB.

It was later discovered that the Astros used a centerfield camera to steal the pitching signs of its opponents. Someone watching this camera feed would then relay to the batter the next pitch by banging a coded message on a garbage can.

According to Bolsinger’s lawsuit, the Astros decoded and stole the sign for essentially every pitch he threw on August 4. Bolstering this conclusion, 41% of Bolsinger’s pitches were preceded by trash can banging. After this disastrous inning, Bolsinger was cut by the Blue Jays.

In November 2019 news of this sign-stealing scheme broke and was later confirmed by MLB on January 13, 2020.

It is fitting a trashcan was integral to the Astros sign-stealing scheme because the whole plan was garbage. But the same can be also be said about Bolsinger’s trade secret lawsuit. Here is a copy of that complaint, Bolsinger v Houston Astros.

The Trade Secrete Claims – A swing and a miss!

Trade secret protection may extend to any information used in one’s business, and if it gives the owner an opportunity to obtain an advantage over competitors who do not know or use it.

But certain requirements must also be met to qualify as a trade secret. And here are two glaring reasons why Bolsinger’s claim over pitching signals is not likely to be successful:

  • Trade secrets – As the name suggests, secrecy is important. In fact, to have a valid trade secret requires reasonable efforts to maintain its secrecy from others. But a pitcher’s signs come from a catcher. So those signs can be readily observable by an opposing player on second-base or anyone in the stands with a view of the catcher.
  • Ownership – Another trade secret requirement is ownership. To the extent pitching signals are “owned,” that ownership would be with the team – not the pitcher.

These are just “two strikes” against Bolsinger’s trade secret complaint, but there are more. As such, it is hard to see how the lawsuit will be any more successful than the disastrous pitching outing that was that gave rise to this lawsuit.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article. Since 2001, Mr. Shinn has represented companies and individuals concerning the issues discussed above and other employment matters under federal and Michigan employment laws.

Trade Secret RisksNephron Pharmaceutical Corp. agreed to accept $7.9 million to settle its trade secret misappropriation lawsuit against its competitor U.S. Compounding Inc., its parent company Adamis Pharmaceuticals Corp., and former employees.

Why it Matters: 

For the defendant businesses, the case arose from actions that every company routinely faces – hiring employees. But the competitors could have avoided the lawsuit or slashed their monetary liability.

The Details:

Nephron sued the Defendants for claims under Defend Trade Secrets Act and related claims. For its lawsuit, Nephron alleged that its former employee (Hulsey) used multiple devices to download its data, including customer contacts, purchasing history, and pricing details, before leaving Nephron to work for U.S. Compounding.

And just after leaving, Hulsey emailed Nephron’s customer about her new position and details for providing the same medications through her new employer. Nephron asserted the information in this email used its trade secret information.  

Nephron also alleged a second former employee used confidential information in her new sales position with U.S. Compounding/Adamis. 

The Take-away:

Your company’s hiring procedures should explain that it respects competitors’ intellectual property rights. And employees will not be allowed to use any such property from a prior employer. Further, your offer letter or employment agreement should include a representation that the new hire will not use any intellectual property from any previous employer and is not subject to any contracts or obligations that would interfere with the offered position. 

Also, Nephron and its legal counsel put on a clinic for how to pursue trade secret misappropriation claims. From the start, they preserved evidence of the misappropriation, showed how that information qualified as a “trade secret,” and provided evidence for how the information was improperly used.

In contrast, plaintiffs and their attorneys don’t always show the same competence. For example, in two recent trade secret misappropriation lawsuits against our clients, we defeated both on motions. These dismissals exemplify the importance trade secret plaintiffs need for properly evaluating potential misappropriation issues and selecting legal counsel who can competently pursue them.

For example, in one of these dismissal orders, the Judge pointed out that the Plaintiff, Qualite Sports Lighting, failed to even provide evidence its information was a “trade secret.” And even if it had, Qualite failed to show any information was misappropriated.

Instead of properly addressing these basic deficiencies at the beginning of the case, the plaintiff likely expended over $200,000 in legal fees. That’s not a good investment – unless you are the plaintiff’s law firm. Here’s a copy of the Qualite Sports Lighting Order Dismissing its Trade Secret Claims.

For individuals, the lawsuit exemplifies what not to do when ending your employment to join a competitor. Specifically, you need to understand what post-employment conditions you have with an employer. Often such restrictions include noncompete, non-solicitation, and confidentiality requirements. Even if there are no written agreements, you may face liability for taking any information of your soon-to-be ex-employer. You should also assume there will be “digital fingerprints” on any information, email, database, or file that you download, forward, or otherwise copy. 

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article or our history of successfully pursuing and defending trade secret claims. Since 2001, Mr. Shinn has represented companies and individuals over the issues discussed above and other employment matters under federal and Michigan employment laws.

Vaccine Mandate IssuesSince March 23, 2020, non-essential employers and employees in Michigan have mostly been restricted from in-person work that is unnecessary to sustain or protect life. That and later stay-at-home orders were in response to the Covid-19 Pandemic. That’s about to change. And with this change, employers will need to decide whether employees must be vaccinated before returning to work. 

Governor Gretchen Whitmer announced on May 10, 2021, that 55% of Michiganders had received their first dose of the safe and effective COVID-19 vaccine. This milestone means in-person work may resume across all employment sectors on May 24, 2021

Here’s a link to Governor Whitmer’s video making this announcement. And here is an excerpt of her remarks:   

I am excited that 55% of Michiganders have gotten their first dose of the COVID-19 vaccine … Everyone is eligible to get their safe, effective shots, and it’s on all of us to get vaccinated as soon as possible to protect ourselves, our families, and our communities. On May 24, we anticipate allowing a return to in-person work across all sectors, and as more Michiganders get vaccinated, we will continue lifting restrictions …

What does a return to work mean for businesses and employees?

So a few thoughts for businesses and employees: First, if you have not gotten vaccinated, do it. And if you have not, make sure your reasons square with sound science and medicine – not something you heard from someone, not something you saw on the internet, or something some politician said to support an agenda or conspiracy. 

Second, employers will likely need to consider whether employers can legally make Covid-19 vaccination mandatory to return to work. And employees will want to know their rights in response to such a mandate. 

Employer Vaccine Mandate – Legal and Operational Concerns.

Can an employer mandate employees get vaccinated? The short answer is mostly yes, but there are landmines along the way to making this decision. Here are a few of concerns: 

  • Full versus Emergency Use Authorization – A distinction without a distinction.

Michigan is an at-will employment statement. So a private-sector business can fire an employee for any nondiscriminatory reason. Thus, an employer can generally require employees to get the Covid-19 vaccine.

But the current Covid-19 vaccines are approved under an “emergency use authorization” and do not have complete Food and Drug Enforcement (FDA) approval. But the better argument is that this distinction is one without a difference and an employer could mandate its employees be vaccinated before returning to work.

  • Medical and Religious Exemptions.

In contrast, employers will need to carefully consider exemptions for an employee who may have a medical or religious reason for refusing vaccination. A person may have a legitimate health-related reason for not getting the vaccine. And under applicable Michigan and federal law, an employer may have to provide a reasonable accommodation to its vaccine mandate. 

While generally less onerous than health-related accommodations, religious exemptions to vaccination requirements should also be considered case-by-case. 

  • HR and Operational Concerns.

There are also practical considerations for why an employer may or may not implement a vaccine mandate. One example includes losing employees who refuse to get vaccinated. Or an employer may have concerns about exposing co-workers and customers to unvaccinated employees. 

Closing Thoughts 

This article is a very cursory overview of the grey areas of issues and grey areas businesses, and employees will likely face as Michigan and the rest of the U.S. return to work. Talk to a knowledgeable employment attorney about vaccine mandates or similar issues involved in your situation. 

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article or complying with Michigan or federal employment laws. Since 2001, Mr. Shinn has represented companies and individuals about the issues discussed above and other employment matters under federal and Michigan employment laws.   

Buying and Selling a BusinessA business seller failed to convince a Michigan Business Court Judge that his noncompetition and nonsolicitation restrictions stemming from the sale of a Business should be enjoined.

For business owners considering or involved in transactions to buy or sell a business, the opinion from the highly respected Kent County Business Court Judge Christopher Yates, highlights several important points for calculating the benefits and costs associated with post-sale competition restrictions. Here is a link to the opinion, Wilbers v Acrisure Wallstreet Partners, Case No. 20-08762-CBB.

The Transaction to Sell the Business:

The plaintiff, Leroy Wilbers, built a successful insurance agency. In 2017, he was offered what the Court described as a “king’s ransom” (the opinion notes the purchase price appeared to be over $10 million). Wilbers and his partners agreed to sell.

As part of the asset purchase agreement, Wilbers agreed to noncompete and non-solicitation restrictions. The Court described these restrictions as “sweeping noncompetition and non-solicitation obligations,” which extended for three years from his termination date. Wilbers also agreed to continue to run the business as an employee and under a separate employment agreement.

Three years later, the purchaser terminated Wilbers. Not content to sit on the sidelines, Wilber sued for a determination that the restrictive covenants were unenforceable so he could start an insurance agency to compete against the purchaser.

As part of the lawsuit, Wilbers sought a preliminary junction barring Acrisure and its related entity (Acrisure Wallstreet Partners, LLC) from enforcing the noncompete and non-solicitation restrictions. But on March 4, 2021, the Court denied this request. As the Court noted in its opinion, Wilbers may end up victorious in the lawsuit, but until then Defendants may enforce the restrictions while the case continues.

Why post-sale restrictions matter:

Post-sale restrictions are important but will impact the seller and the purchaser for different reasons.

First, business owners need to understand an essential distinction between a noncompetition provision and a non-solicitation revision. The first must be reasonable under Michigan law. And if it is not reasonable, a Court may opt to modify the noncompetition restriction. But a judge is not required to essentially give free legal services in the form of revising your noncompete agreement. So make sure your noncompetitive is enforceable by having it drafted or reviewed by an experienced noncompete attorney.

In contrast, Michigan courts lack the authority to rewrite a non-solicitation provision, even if it is unreasonable. And, as the opinion makes clear, claiming a non-solicitation restriction is unfair after receiving millions of dollars does not make for a compelling argument to strike it.

Second, and relating to the prior point, if you are purchasing a business, you will want to ensure the purchase price you pay does not become the seed money for the seller to start a competing business immediately. This protection should be achieved through reasonable noncompete restrictions and favorable non-solicitation provisions.

Third, the Court noted Wilbers “wisely chose to seek a declaratory judgment before entering the insurance market on his own to compete against” Acrisure. Based on our almost 20 years focusing on noncompete litigation, we agree: it is a risky and often costly gamble to start competing first and wait to see what happens with your noncompete restriction. And adding injury to insult, you may end up expending high startup costs, only to be later told by a judge that you can no longer pursue the business.

Closing Thoughts:

For every entrepreneur and business owner, there comes a time when you will be buying or selling a business. And there are many moving pieces to buy/sell situations. But two critical pieces are the post-sale restrictions like noncompete and non-solicitation restrictions. For purchasers, make sure you get it right to protect your investment. For sellers, make sure you understand your obligations and receive acceptable value for what you agree to give up.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article. Since 2001, Mr. Shinn has represented companies and individuals concerning noncompete disputes and related business claims under federal and Michigan employment laws.

Employee Social Security NumbersFor anyone who has played sports, you’ve probably heard a coach say something like, “play through the whistle.” The idea being you don’t let up until the play is over. The same applies to running a company. Except when it comes to making the difficult decision to close a business, not playing through the whistle can result in more than just getting benched; You could be looking at civil and criminal penalties if employee records involving social security numbers and related information are not properly disposed of.  

This is the likely scenario playing out in Commerce Township. Specifically, Jessica Dupnack of Fox 2 reported that “piles of personal employee files” were found in a dumpster behind a Commerce Township business. The business, a ship and print center, recently closed after being evicted for non-payment. These files included Social Security numbers, bank routing numbers, licenses, and other personally identifiable information.

While it appears the business owner neglected to comply with the legal requirements for properly disposing of this information, thankfully, Fox 2 stepped up and did the right thing by informing the Oakland County Sheriff’s Department.   

Violations for Mishandling Employee Social Security and Privacy

Under Michigan’s Social Security Number Privacy Act, MCL 445.81 et seq., employers must comply with several restrictions or prohibitions regarding using an employee’s Social Security number. 

And an employer who obtains Social Security numbers in the ordinary course of business must create a privacy policy that does at least all of the following concerning the Social Security numbers the person possesses or obtains:

  1. ensures to the extent practicable the confidentiality of the social security numbers;
  2. prohibits unlawful disclosure of the social security numbers;
  3. limits who has access to information or documents that contain the social security numbers;
  4. describes how to dispose of documents that contain the social security numbers properly; and
  5. establishes penalties for violation of the privacy policy.

MCL 445.84. 

There are criminal penalties for knowing violations of the prohibitions discussed above. There are also provisions for civil actions for actual damages and the recovery for attorneys’ fees. MCL 445.86.

As a business owner and attorney who represents many business clients, we know owning a business has never been easy. And it doesn’t get any easier when the company closes down. But taking shortcuts when it comes to disposing of employee personnel records may open the door to criminal and civil liability. And it is simply not fair to expose your employees’ personally identifiable information. 

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article or complying with Michigan or federal employment lawsSince 2001, Mr. Shinn has represented companies and individuals concerning the issues discussed above and other employment matters under federal and Michigan employment laws.   

clawback bonusSeverance agreements have recently made headlines in Michigan after it was reported that three high-ranking departing state officials were paid severance amounts ranging from slightly more than $11,000 up to $155,506.00.

In this regard, I was recently interviewed by the Detroit News reporter, Craig Mauger, about using severance agreements concerning the payout to Robert Gordo, the former state health department director. Here’s an excerpt of what I said:

… executive separation agreements usually include a release from potential future legal claims, compensation details and non-disparagement requirements, which bar the two sides from talking negatively about each other … separation deals within the government are not unheard of among high-level officials …. There are benefits to both parties to having it in place…

But the confidentiality terms often found in these agreements, while common in the private sector, are less so for governmental employees.

Clawing Back Payouts

If a company is paying out money – either as severance or bonuses – then a “clawback” provision should be used. For bonus payouts, that provision can foster long-term business goals and avoid rewarding bad behavior. And for severance situations, it is a means to recover money if the other party violates the agreement.

A clawback provision was recently described in The Economist, “How to design CEO pay to punish iniquity, not just reward virtue, “as follows:

If business had a Moses, “Thou shalt link pay to performance” would be on his tablet. Compensation committees have, however, tended to stick to a narrow reading of the commandment. Whereas they reward good behaviour, deterring the bad is an afterthought measures designed to ensure that misconduct does not pay are becoming central to the debate about how to craft bosses’ salary plans.

In other words, clawbacks are intended to balance long-term business goals against self-interested managers taking unsustainable shortcuts to get a bonus for short-term, individual gain.

Key Takeaways for adding a clawback to your employment agreement.

In our experience counseling businesses and managers on improving employment agreements, we routinely discuss these points:

  • First, make sure your clawback provisions cover all areas of compensation that would be subject to recovery. This extends to cash bonuses, equity awards, or both.
  • Second, if it has been some time since you’ve updated your employment agreements, “bad-conduct” may need to be expanded. For example, clawback provisions should not just cover criminal or financial misconduct. Instead, your business should extend the requirement to any conduct that might damage your business’s reputation. Examples include managers who create a toxic corporate culture, engage in sexual harassment, make racist comments, engage in sexual harassment, or engage in insurrection or similar domestic terrorism like that taking place on January 6 at the Capital.
  • Third and building on the preceding point, make sure you carefully look at the definition “for cause” used in the agreement. “For cause” should define the conduct and circumstances when a bonus or other compensation is forfeited or must be returned.

At least for bonuses, another option is to lengthen deferral periods for paying cash bonuses or the vesting date for equity grants. This has the advantage of reducing the chance that your company will pay money before bad conduct is discovered.

Considerations for Individuals Negotiating Employment Agreements.

On the other hand, when we represent individuals in negotiating employment agreements, we focus on making sure clawbacks are not used as a backdoor way to avoid paying money otherwise owed.

And we also make it a point to negotiate language so a clawback provision does not become a punishment for a flawed decision or bad luck. On this point, it is essential to emphasize in negotiations that a heavy-handed, one-sided clawback provision is likely going to drive away talented individuals.

Another thing to consider is researching the company’s litigation history regarding paying bonuses, commissions, or similar matters. This may provide insight into the company’s trustworthiness (or lack thereof) for properly paying such compensation or trying to recover it.

Thank you for reading this post. Please use this link to contact Michigan attorney Jason Shinn if you have questions about this article. Since 2001, Mr. Shinn has represented companies and individuals in negotiating and litigating disputes over employment agreements.

Time for suing employment discriminationA recent Michigan Court of Appeals decision shows the value in smartly drafting your employment applications and related hiring documents so they double to protect the business from employment discrimination claims.   

Going Deeper: 

Specifically, a case captioned McMillon v. City of Kalamazoo, (MI Court of App. Jan. 21, 2021) involved a plaintiff who applied for a position with the Kalamazoo Department of Public Safety in 2004. As part of the 2004 hiring process, she filled out and signed an employment application. Under the application, Plaintiff agreed that any lawsuit against the City arising out of her employment or termination must be filed within nine months of the event giving rise to the claims or be forever barred. 

The City declined to offer her a position on July 21, 2004. But it kept her application and other hiring documents on file. 

Later in mid-2005, the City re-interviewed Plaintiff for another position. The City did not require her to fill out another application and used the same background check used in 2004. But this time, Plaintiff was offered employment in September 2005.

Fast forward to May 2019, and Plaintiff sued the City. She alleged six claims for various forms of discrimination, retaliation, and harassment. However, the City moved to dismiss those claims by arguing Plaintiff’s 2004 employment application shortened the applicable statute-of-limitations (the time when a lawsuit must be filed) to nine-months. 

The Plaintiff’s attorney responded that the 2004 employment application was not binding because the City denied her employment in 2004, and it hired her about 18 months later. Thus, the City should have been required to “restart” the hiring process, including having Plaintiff “repeated all requirements for employment.”  

The Court rejected this argument. It reasoned there was no “restart,” because the City did not require her to complete a new employment application or require her to undergo the various requirements imposed on other applicants. 

Presumably, if plaintiff ‘repeated all requirements for employment,’she would have also completed a new employment application, defendant would have conducted a second background check on her, and she would have been required to submit to the same previously completed tests. But she did not.

Thus, the Michigan Court of Appeals agreed with the trial court’s dismissal because the nine-month limitations period in the employment application barred her employment discrimination claims. 

Why this Matters for Employers and Employees:

In reading the McMillon opinion, the City dodged a bullet. And I think there are issues in the opinion that suggest the decision should have gone the other way. But it is unclear from the opinion if those issues were overlooked by Plaintiff’s legal counsel or were raised and the Court disagreed.

In any event, for employers, this case is an excellent reminder to ensure your hiring documents and procedures maximize protections against liability under applicable federal and Michigan employment discrimination laws. 

Consider, for example, the plaintiff suing the City of Kalamazoo would have had three years to pursue her claims under Michigan’s primary anti-discrimination statute (Elliott-Larsen Civil Rights Act or ELCRA). But the City smartly shortened the limitation period down to just nine-months, which allowed it to avoid costly and uncertain litigation on the merits. Even so, adding language to your employment documents to shorten the statute of limitations requires careful planning. This is because the filing period for some employment claims cannot be shortened. Thus, employers must understand how to properly draft for those exceptions.   

Conversely, this case should be a stark warning for employees to make sure they understand what you sign. Whether it is non-compete restrictions, employment agreements, or employee handbooks, we routinely turn-away matters because rights or remedies have been signed-away or are limited by what the person previously signed. 

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article, or complying with Michigan or federal employment laws, or litigating claims under both. Since 2001, Mr. Shinn has represented companies and individuals in employment discrimination claims under federal and Michigan employment laws.   

Noncompete Ripple EffectA recent court opinion is a cautionary tale for business owners and entrepreneurs and their attorneys about the importance of protecting attorney-client communications. It is also a reminder of how easily that privilege can be inadvertently waived and the downstream impact it can have on noncompete disputes.

The Decision

The court opinion comes from a case in Michigan federal court, Prudential Defense Solutions, Inc. v. Graham et al., Case No. 20-11785. The opinion stemmed from a subpoena on the defendants’ former business attorney. At issue was whether that attorney must produce documents and information relating to the noncompete and trade secret misappropriation claims. Here, the attorney-client privilege was inadvertently waived because of poor pre-business planning by the entrepreneurial defendants.

Why it Matters

Usually, the attorney-client privilege bars the disclosure of “confidential communications” between an attorney and client on matters that relate to the representation. Specific requirements must exist for this privilege to apply. But once established, clients can waive it without proper care and attention. Once waived, devastating results often follow.

Going Deeper

After Prudential Defense Solutions Inc.’s former VP signed a noncompete agreement, Prudential alleges he breached it by establishing a competing security company and misappropriated trade secret information to use in the competing business. Prudential sued the former vice president and his business partners for trade secret misappropriation claims under federal and Michigan law. There are many moving pieces to this case, including the typical request for injunctive relief, motions to dismiss, and other procedural matters.

But as it relates to the waiver of attorney-client communications, one of the defendants emailed his business partners about specific customers to pursue and profit margins for those customers. The email was sent before Prudential filed its lawsuit. However, and here’s where the critical mistake was made, the defendant disclosed the content of discussions with legal counsel:

I spoke with [the attorney] he says go get them. They are fair game. No contracts exist so [the attoreny] says it’s all good news.

In addressing the waiver issue, the Court first noted that the email was produced by the Defendants’ litigation counsel. The Court also underscored that the production by litigation counsel was made with no objections, conditions, or qualifications by counsel before “it was handed over.” ECF No. 42, p. ID 1411. Thus, the waiver was “intentional.”

Second, the email was not sent by the attorney. Nor was the attorney included as a recipient.

Third, the email disclosed the attorney by name, it described the attorney’s advice about three specific customers, and it referenced the attorney’s conclusion.

And here is why it is so crucial for entrepreneurs to protect the attorney-client privilege; once waived it extends to all information related to the subject matter of the details on which the waiver occurred. Thus, the defendants and the attorney had to produce “all documents or communications” relating to the “topics and substance” of the email.

Take-aways on the attorney-client privilege

Presently, I am lead counsel in a trade secret misappropriation claim where we are now litigating and briefing the issue of whether the attorney-client communication was waived. But in my case, I am arguing the former employer waived its attorney-client communication in relation to its trade secret misappropriation claims. This waiver and anticipated information concern whether the former employer improperly pursued trade secret misappropriation claims in bad-faith against my client.

So based on the Prudential case and our experience, here are three recommendations for protecting the attorney-client privilege if litigation later arises:

  1. We discuss with our business clients at the beginning of an engagement the importance and parameters of the attorney-client privilege. We also discuss who should be part of any legal discussions. We also stress what to say and not to say to employees or others outside the business-legal team. Make sure you do the same with your attorneys. And if in doubt, ask.
  2. For startups, make sure you and any business partners are appropriately represented by counsel so the attorney-client privilege can be properly documented if it later needs to be asserted. Don’t assume because one person has legal counsel that the privilege will extend to all business partners.
  3. For entrepreneurs and business owners, it is also important to consult with counsel before making any disclosures that could inadvertently open up the door for waiving attorney-client communications. On this point, the Prudential opinion listed many examples of where businesses inadvertently waived their attorney-client privilege because of discussions with third parties. Some examples included a business that disclosed a PowerPoint presentation made as part of an investigation into its earnings. The presentation described interviews and investigative findings made by legal counsel. In another instance, a business owner met with government investigators over Medicare billing. The owner disclosed its marketing plan covering services billed to Medicare and represented it “legally compliant” per the business’ attorney’s conclusion. This disclosure waived the attorney-client privilege. Again, improper disclosures may not be obvious. And the ripple effect from inadvertently waiving the privilege may prove devastating.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article, or litigating noncompete, trade secret, or other business claims. Since 2001, Mr. Shinn has handled these matters on behalf of companies and individuals throughout Michigan in both state and federal courts.