The employee you lay off today may be your competition tomorrow. So says attorney Christian Dubia, who points to the rise in the number of unfair competition lawsuits companies are bringing against former employees. Dubia is a former Marine Corps attorney and a partner in the 16-month-old firm of McCauley & Dubia of Irvine. He spoke with free lance writer Anne Michaud about employees who "have Rolodex will travel" to competing companies or to set up businesses of their own.
Has the recession brought an increase in claims of unfair competition?
We have seen a significant number of cases. They involve claims that employees are leaving and taking trade secrets, or are breaching confidentiality or non-competition agreements.
If you think about the dynamics of the recession, businesses are being forced to lay off people not only at the lower echelon, but also at the top. Those top people sometimes have difficulty finding similar positions, so they will form a new company. Oftentimes, they compete with their former employer.
Are companies spending more to protect their inventions or trade secrets?
There is certainly more management time being expended on it. During a recession, people feel they have to be more concerned about their competitive advantage. That lies in their proprietary information, in their trade secrets.
I believe companies are spending more time and effort to indoctrinate their employees about confidentiality agreements, to consult counsel about steps they need to take to ensure that information will be protected under the law. There are some elaborate manuals being developed to educate management.
What industries are most susceptible?
Businesses that are very dependent on relationships are the most sensitive--lawyers, insurance brokers, advertising agencies. For example, in the newspaper business, trade secrets might be defined as a source list or a relationship with someone in government or industry.
Certainly the high-tech companies, by virtue of the effort that goes into new product development, have a stronger incentive to protect those products than some of the more staid industries.
Also, a lot of service-related companies have trade secrets in their internal policies and the way they perform services for their customers. It's not just things, but sometimes procedures, that give rise to a trade secret claim.
For legal purposes, who "owns" a list of sources or clients--the company or the individual?
I recently handled a case for the employees of an advertising agency who had left and formed a competing agency. Their former employer sued them because they were approaching their old clients and soliciting business. They didn't take anything with them--not their Rolodexes or correspondence files--just what was in their heads. It was the position of their former employer that because they were privy to that information, they were competing unfairly. (Dubia's clients won the case.)
The resources it takes to fight a suit like that can destroy that fledgling business. The ulterior motive of the suit was to stifle competition. The lawsuit itself constituted unfair competition.
So, does the question turn on whether the material is printed?
In most instances, when employees leave and take nothing with them other than what they have in their heads, former employers have difficulty proving they are eing harmed.
But, obviously, if you are privy to the secret formula and you memorize that secret formula, then your memory of it is as good as having it in writing. So there are exceptions.
Given this environment, is it more dangerous now to hire away your competitor's employees?
If you enter into an arrangement like that so that you can obtain secret information, you are buying a lawsuit.
Also, if you consider the ethics of an employee like that, you know that, down the road, that employee is capable of passing on whatever trade secrets you might have.
As an employer, what can you do to protect yourself if you are hiring someone who worked for a competitor?
If I was the employer, I would want the prospective employees to acknowledge in writing that they are not bringing anything with them that they understand to be confidential. So if the issue comes up, (the company and the employee) can demonstrate to a court and to the other side that, to the best of their knowledge, nothing was brought in that was sensitive.
However, that is not an absolute protection.
What do you do if you're the employee who is leaving for a competitor's company?
My advice is, if you're in doubt about whether something's confidential, ask your current employer. Say, 'Hey, look, I'm going to take my Rolodex. Is that a problem?' If people are upfront, presumably a lot of this litigation can be avoided.
Some employers have used the rise in theft of trade secrets to justify electronic spying on employees.
I believe invasion of privacy like that is justified only when national security is at stake.
How high are the stakes in lawsuits involving unfair competition?
A lot of these cases that you see now are bet-your-company type cases. The magnitude of the litigation could cause significant loss to the company--loss of jobs, perhaps even loss of the company.
Before, these cases might not have been as important. Because of the economy, companies are operating on a thinner margin.