Amy M. Fowler In today's competitive economic environment, protecting your company's business interests has become increasingly more important. Unfortunately, technology makes doing that increasingly more difficult. As part of their attempt to protect their business interests, some employers enter into non-competition, non-solicitation, and/or non-disclosure agreements with their employees to minimize the loss of information, customers, and other important assets both during and after an employee's tenure with the company.
In general, a non-competition agreement prohibits an employee from working for a competitor of his/her employer for a certain length of time and usually within a certain geographical area after completion of his/her employment with the employer.1 Likewise, a non-solicitation covenant prohibits an employee from soliciting the customers and/or employees of the employer, also for a limited time period after completion of his/her employment with the employer. Finally, a non-disclosure agreement forbids an employee from disclosing trade secrets and other confidential information obtained from the employer.2 Most jurisdictions throughout the country have validated such agreements, recognizing that an employer has a legitimate interest in protecting trade secrets, customer relationships, customer lists, and even the identity of the customer, so long as the information is not readily ascertainable in the public domain, and the agreements are otherwise reasonable and supported by adequate consideration.3
Protectable Interests in Missouri and Kansas Missouri
In Missouri, a “contract . . . in restraint of trade or commerce is unlawful.”4 Although technically a contract in restraint of trade, covenants not to compete are allowed by statute.5To be enforceable, a covenant not to compete must be “reasonably necessary to protect the employer’s interests, and reasonable as to time and geographic scope.”6 In making this assessment, courts will consider the circumstances surrounding the covenant, including the “subject matter, the purpose it served, the situation of the parties, the limits of the restraint, and the specialization of the business involved.”7 Specifically, relevant factors are “the consideration supporting the agreement, the threatened danger to the employer in the absence of such an agreement, the economic hardship imposed on the employee, and whether or not the covenant would be inimical to the public interest.”8
With regard to duration, a post-employment restriction is statutorily permissible so long as it “does not continue for more than one year following the employee’s employment . . . .”9 Employers should note that a restriction on an employee who only performs, for instance, secretarial services, may not be enforceable for a full year period. By contrast, a covenant lasting more than one year may be upheld if the former employee’s status was more akin to that of a partner, or one who had “a stake in the success of the former employer, was intimately involved with the day-to-day operation of the business . . . exercised considerable control as an executive, more than a typical employee . . .”10 Thus, restrictions of longer duration may be enforceable depending on the employee's position and the interest sought to be protected.
As mentioned above, even if a restrictive covenant is reasonable as to time and scope, Missouri Courts will enforce it only to the extent it protects a legitimate interest of the employer. As one example, an employer has an interest in protecting the stability of its workforce.11 That is, employers have a legitimate interest in protecting themselves from “unfair competition” from former employees.12 Thus, anti-raiding agreements (those designed to prohibit the solicitation of a company’s current employees by a former employee) are expressly allowed by statute in Missouri.13
Trade secrets are also clearly protectable interests under Missouri law.14 A trade secret, as defined by the Uniform Trade Secrets Act (“UTSA”), is any information that “derives independent economic value, actual or potential, from not being generally known . . . and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”15 Even without an agreement providing for such protection, an employee may not divulge trade secrets imparted to him or her in confidence by the employer.16 However, as mentioned above, it is crucial that the information be adequately confidential to warrant protection, regardless of whether an agreement exists.17 Thus, it is important for a business to take steps to maintain the confidentiality of information it will seek to protect in an action for misappropriation. The Missouri trade secret statute provides for both legal and equitable relief in the event of “actual or threatened misappropriation.”18
Lastly, Missouri courts have held that relationships with customers (as well as customer contact information) are legitimate interests and thus may be protected by restrictive covenants.19 Unlike trade secrets, a former employer attempting to enforce a restrictive covenant need not show that its customer contacts are confidential or secret.20 Where an employer has a legitimate proprietary interest in its customers, a non-competition agreement will be enforced as to an employee with substantial customer contacts.21 It may not be enough for an employer to show that the former employee had only some contact with customers while employed by the company.22 An employer may, however, protect its customer relationships even if the employee had contact with some of the same customers before being hired by the employer.23
Unlike Missouri, Kansas does not have a statute that addresses covenants not to compete. However, Kansas courts recognize such covenants as developed through the common law. In determining whether to enforce a covenant not to compete, Kansas courts consider four factors. First, as in Missouri, the restrictions must be reasonable as to time and geography.24 While there is no bright-line definition of "reasonable," the “rights of the promisee, the promisor, and the general public are to be taken into account; area and time limitations must be reasonable under the circumstances of the particular case.”25 For example, a five year, world-wide restriction was found to be “patently unreasonable” in light of the small market of companies that engaged in the unique field of the company (engraving and embossing).26 By contrast, a three year, one county, post-employment covenant not to compete signed by a physician at the beginning of her employment was upheld because the protection afforded by the covenant was “properly coextensive with the area from which the employer drew most of its patients.”27
The second factor Kansas courts will consider is whether the particular agreement imposes an undue burden on the employee. Specifically, courts will ask if the former employee is “restricted from pursuing his chosen profession altogether.”28
The third factor Kansas courts consider is whether the restrictive covenant might "injure the public."29
Lastly, restrictive covenants will be enforceable only to the extent they protect a legitimate interest of the employer.30 In general, a protected interest exists where the employee obtains an “unfair competitive advantage.”31 Thus, both trade secrets and customer contacts are recognized as protectable interests in Kansas.
With respect to trade secrets, like Missouri, Kansas recognizes the UTSA.32 Accordingly, a former employee may not divulge a trade secret if it qualifies as such under the definition provided above. Kansas courts have recognized scientific data, sales and marketing techniques, general business principles, and a variety of other information types as protected trade secrets.33 However, employers should note that agreements which restrict “the communication of ideas in general, rather than purely trade secrets have been found to be unreasonable."34 Thus, Kansas courts will strike nondisclosure covenants which are too general in their description of information sought to be protected.”35
With respect to customer contacts, a recent Kansas state court appellate decision recognized customer contacts as a legitimate interest that can be protected by valid non-solicitation covenants.36 Such covenants can include clauses to protect all customer relationships, not just those the employer facilitated or cultivated.37 In addition, in Kansas, even without an employment agreement, a former employee may never use a former employer’s confidential written customer list to pursue those customers.38 Further, a customer list is more likely to be given trade secret protection if it features detailed confidential information.39
A Blurry Line: Conflating Professional and Social Contacts
The emergence and growth of social networking websites in the past decade has been dramatic. LinkedIn alone boasts over 42 million members in 200 countries including executives from all Fortune 500 companies. Facebook, which was originally geared toward a younger, pre-professional crowd, currently has nearly 92 million members, including members of all ages and professional levels.40 With business and social contacts becoming increasingly entwined because of these websites, the era of the desk-top rolodex seems clearly behind us.
LinkedIn, in particular, presents a variety of problems. Specifically, LinkedIn communication does not happen in a direct line, but instead offers multiple points of entry and multiple points of contact.41 Indeed, this convoluted, web-like structure allows former employees to connect with former clients and colleagues through a variety of avenues, thereby giving them a defense to claims that they misappropriated confidential business information such as customer or employee lists, as portions of those lists may be developed through the LinkedIn network itself.42
Facebook provides similar means for employees and former employees to maintain contact with customers and former co-workers who then become "friends," blurring the lines between social and professional communication and making distinguishing acceptable and unacceptable solicitation more difficult.
A Few Courts Chime In: United States and Beyond
Due to the rapid growth of social networking sites, the legal issues arising from this phenomenon are only now beginning to be addressed by courts. At least two courts in the United States (and one in England) have confronted the increasingly complex nature of these claims.
In Kelly Services v. Marzullo, the United States District Court for the Eastern District of Michigan was asked to consider whether job information listed on a former employee’s LinkedIn profile constituted evidence that he was violating his agreement not to compete with, or solicit the customers of, his former employer.43 In this case, the defendant employee, Marzullo, a former executive at Kelly Services’ Dallas office, told the company when he resigned that although he was going to work for a competitor, he would not be working in the Dallas market. He also claimed he would have to move to Colorado in order to cover his new territory.44 Following his departure, Kelly Services discovered through Marzullo’s LinkedIn profile that he was not only working for the competitor, but was still living in Dallas and was responsible for the competitor’s Dallas region. Relying on the information in his on-line profile, the court found that Marzullo was in violation of the non-competition covenant and granted an injunction preventing him from working for Kelly Services' competitor for the twelve month period set forth in his agreement with Kelly Services.
In TekSystems v. Hammernick, et al, a case now pending in the United States District Court for the District of Minnesota, the plaintiff, a recruiting company, alleges that three former employees used their LinkedIn accounts to communicate improperly with at least 20 of their former colleagues, thereby breaching non-competition, non-disclosure, and non-solicitation covenants in their employment contracts.45 In one LinkedIn message allegedly authored by one defendant, the defendant asked a current TekSystems employee if he was “still looking for opportunities,” and stated the defendant “would love to have you come visit my new office and hear about some of the stuff we are working on.”46 While the defendant does not deny that she “LinkedIn” with many TekSystems employees – some of whom, the defendant claims, made the initial contact with her – she denies that the communication ever went beyond the initial contact stage.47 TekSystems also alleges that the defendants used confidential information amounting to trade secrets in articulating a list of potential candidates. In response, the defendants contend they could not have divulged confidential trade secrets because TekSystems and its employees regularly release such information on LinkedIn and Facebook, thereby stripping it of its confidential nature.48 In this case, which is set for trial in August 2011, TekSystems is asking the court to require all three defendants to comply with the terms of the covenants and to prohibit them each from working at their current employer’s office or for any other TekSystems competitor within 50 miles of Edina, Minnesota.49 In addition, TekSystems is seeking damages equal to any compensation, commission, bonus, salary, gratuity, or other gain that the defendants have received as a result of their alleged contract breach.
Demonstrating the global nature of the potential problem, in Hays Specialists, Inc. v. Ions, a British court ordered a former Hays employee to disclose certain documents after the court found reasonable grounds for Hays to assert a breach of contract claim.50 The defendant, who left Hays to start a competing recruiting agency, allegedly uploaded information from Hays’ confidential internal client data base to his LinkedIn account, and subsequently invited some of Hays’ clients to join his network. When Hays discovered evidence of some of this activity, it petitioned the High Court in London to order the former employee to disclose all LinkedIn business contacts to determine if sufficient information existed to file an actual lawsuit. The Court concluded sufficient information existed and ordered the employee to disclose all such contacts as well as all emails sent to or received by his LinkedIn account.
Protecting Your Interests: What You Can Do The first thing an employer can do to minimize risk is to proactively draft restrictive covenants in employment agreements broadly enough to encompass a range of communication including social media. That is, an employer should advise employees at the outset of their employment that disclosure of confidential information, including trade secrets on social networking sites is prohibited.51
Further, an employer should be careful not to jeopardize the restrictive covenants by encouraging or facilitating employees’ use of social networking activities without first taking adequate steps to monitor or control them to the extent they pertain to clients or customer data.52
One means of control is to implement and enforce a Blogging and Social Networking Policy that describes the information that may be placed on the internet, proscribes permissible employee activities, and explains disciplinary consequences for violating the policy.
In addition, an employer may implement a practice of monitoring the social networking sites of current and former employees and, upon learning of possible breach, take immediate measures to address the situation.
An employer who learns of improper conduct by an employee or former employee should take immediate steps to preserve evidence if they learn of an employee’s social networking activity that they believe violates a non-solicitation or other restrictive covenant.53 An employer may do so by sending a cease and desist notice to a former employee and/or notify a former employee's new employer that the former employee may have used the new employer’s resources to communicate with protected clients in breach of that individual's obligations.54 With regard to a current employee who improperly posts confidential information, the employer may discipline the employer, restrict access of the site to other users and/or remove the particular information if it is posted on a company profile.
Finally, when deciding whether a former employee's conduct is appropriate, an employer should analogize social networking activities to more traditional forms of communication.55 If mailing a letter or emailing a customer would constitute unlawful solicitation, then electronically notifying a former customer through a social networking site should also. Indeed, a good piece of advice from one commentator is, “if you can’t call someone and say it, and you can’t send a letter and say it, then you shouldn’t be doing it on LinkedIn.”56 University of Minnesota Law School Professor Thomas Cotter echoes this sentiment: “There is nothing more inherently different about doing it this way and doing it the old way, other than this way is much more efficient.”57
1 30 MoPrac § 181, (citing Weems, “Covenants Not to Compete: Recent Missouri Decisions” 50 J.MoBar 169, 170 (May – June 1994).
2 30 MoPrac § 181, (citing Weems, “Covenants Not to Compete: Recent Missouri Decisions” 50 J.MoBar 169, 170 (May – June 1994).
3 Lawrence J. Del Rossi & Joshua Rinschler “Social Networking and Restrictive Covenants” Law360, New York, March 16, 2010.
4 Mo. Rev. Stat. § 416.031
5 Mo. Rev. Stat. § 431.202
6 Washington County Memorial Hospital v. Sidebottom, 7 S.W.3d 542 (Mo. App. 1999).
17 Brian M. Malsberger “Covenants Not to Compete: A State by State Survey.” Sixth Addition, Vol. II, 2007, discussing Tank Tech, Inc. v. Neal, No. 1:07CV20HEA, 2007 WL 2137817, at *7 (E.D. Mo. July 23, 2007).
19 37 MoPrac § 7.6. Typically, the customers must generate repeat business to qualify as protectable. See Systematic of Kansas City, Inc. v. Rhea, 763 S.W.2d 190 (Mo. Ct. App. W.D. 1988).
20 Brian M. Malsberger “Covenants Not to Compete: A State by State Survey.” Sixth Addition, Vol. II, 2007, discussing Systematic Bus. Servs, 162 S.W.3d at 49.
21 Brian M. Malsberger “Covenants Not to Compete: A State by State Survey.” Sixth Addition, Vol. II, 2007, discussing Refrigeration Indus., Inc. v. Nemmers, 880 S.W.2d 912, 921 (Mo. Ct. App. S.D. 1994).
22 East Returns Midwest, Inc. v. Schultz, 964 S.W.2d 450, 454 (Mo. Ct. App. 1998) (finding that the plaintiff pharmaceutical company failed to allege facts sufficient to establish that its former employee had contacts "of a kind enabling him to influence customers" while working at the company).
23 Naegele v. Biomedical Sys. Corp, 272 S.W. 3d 385, 389 (Mo. Ct. App. 2008) (finding that the plaintiff company had a protectable interest in certain customer contacts because it had invested considerable money, time and effort to allow the defendant former employee to develop strong relationships with customers, including those the defendant knew prior to her employment with the plaintiff).
29 Weber, 913 P.2d 84, 90 (noting that where a shortage of physicians in the community would be created by enforcing a noncompetition covenant, the covenant may not be enforced because it is contrary to the public interest).
32 Codified at Kansas Statutes Annotated §§ 60-3320 – 3330.
33 Brenda G. Hamilton “Trade Secrets – Kansas.” 2008.
34 Puritan-Bennet Corp. v. Richter, 679 P.2d 206, 211 (Kan. 1984) (finding that provisions of a hiring agreement prohibiting the employee from disclosing trade secrets and proprietary information respecting the manufacture of chemical oxygen generators for use in passenger aircrafts and from rendering services, directly or indirectly, to any competitor for a year was unreasonable as virtually barring the employee from practicing his profession).
35 Vasquez v. Ybarra, 150 F.Supp.2d 1157 (D. Kan 2001).
36 Fee Ins. Group v. Martin, 213 P.3d 447 (Kan App. 2009).
38 Id. citing Garst v. Scott, 114 Kan. 676 (1923).
39 Dodson Int'l Parts, Inc. v. Altendorf, 347 F.Supp. 997, 1011 (D.Kan. 2004) (identifying a customer list which also contained "detailed records regarding purchasing patterns, sales volumes, and payment histories" as trade secrets).
40 Quantcast.com (May 2009), New York Times, Maven Communications.
41 Leigh Kampling-Carder “LinkedIn Suit Highlights Weak Spot in Noncompetes.” Law360, New York (June 01, 2010).
43 Lawrence J. Del Rossi & Joshua Rinschler “Social Networking and Restrictive Covenants” Law360, New York, March 16, 2010. Discussing Kelly Services, Inc. v. Marzullo, 591 F. Supp 2d 924 (E.D. Mich 2008).
44 Kelly Services v. Marzullo, 591 F. Supp 2d 924 (E.D. Mich 2008).
49 Christa Meland “LinkedIn Cited as Evidence in Non-Solicit Lawsuit” Twin Cities Business, 3/26/2010. Retrieved from http://tcbmag.blogs.com/daily_developments/2010/03/linkedin-cited-as-evidence-in-non-solicit-lawsuit.html.
56 Jim Hammerand “LinkedIn to a Lawsuit” Mar. 31, 2010. Retrieved from portfolio.com