After Noah Kravitz left his editorial job at popular mobile phone site PhoneDog.com, he posted competitors’ content to the Twitter account he helped create at his former company and took as many as 17,000 of the company’s Twitter followers with him, PhoneDog asserted in a lawsuit, which sought damages of $2.50 a month per Twitter follower for eight months, or $340,000.
“But the two didn’t have an agreement as to what would happen with the Twitter account,” said Daniel Schwartz, a partner in the labor and employment litigation practice at Connecticut-based Shipman & Goodwin LLP, who followed the case but didn’t argue it. “[Kravitz] argued that the company never made him sign anything, so he could take the followers when he left.”
In December 2012 the case was settled out of court. It’s a sober reminder that, absent a nondisclosure agreement (NDA), organizations may have limited recourse if a departing employee takes proprietary information and clients—or publicly disparages the company—when he leaves.
“When you’re leaving there’s no reason to sign” an NDA, said Michael D. Haberman, a consultant for Georgia-based Omega HR Solutions Inc. “Without that, or some other sort of noncompete [document] in hand, a company can’t do much.”
Ideally, a company should get employees to sign an NDA when they’re first hired. But if the business doesn’t take this precaution, then a worker heading out the door “isn’t bound to sign anything,” agreed Jonathan Hyman, a partner in the labor and employment practice at Ohio-based Kohrman Jackson & Krantz PLL.
“You’ve got to lock them in on their way in the door,” he emphasized. “Some companies will even have employees—depending on the type of information they might be privy to—sign as early as the interviewing process.”
Moreover, an organization should consider putting language in an NDA that protects its reputation, not just its secrets.
“When you write these NDAs you don’t have to limit the agreements to confidential information,” Hyman explained. “We can say, ‘And you agree you will not disparage or defame the company while an employee or thereafter.’ ”
But not all companies think ahead. And some organizations may believe that certain employees don’t need to sign NDAs.
Typically, these agreements are designed to protect sensitive or competitive information. “With an administrative assistant, the employer may not be concerned” about getting an NDA, Schwartz said. “If it’s a salesperson who knows all the contacts for the employer’s business, that’s [information] you want to protect.”
While it’s rare that companies can withhold pay from a departing worker who won’t sign an NDA, there are other tactics they can use.
Employers may consider giving the departing worker something of value in exchange for signing the NDA, Schwartz said.
“Plenty of employers” offer workers a severance package in exchange for their signing an NDA and releasing the organization from future legal claims, according to Schwartz. “You can’t typically withhold pay or accrued vacation, but you could withhold severance.”
There are times when an employer-company contract allows the organization to withhold accrued vacation, promised bonuses and other compensation, even if an NDA isn’t signed.
Employers can draw up contracts that state that employees are “eligible for unpaid commissions [upon leaving] provided you sign an NDA when it’s presented on termination of your employment,” said Jonathan Segal, a partner in the employment services practice of Philadelphia-based Duane Morris LLP.
He noted that this may be difficult in states such as California, which makes it hard to withhold commissions.
Most states recognize that, even in the absence of an NDA, trade secrets may be protected under the common-law doctrine of “employee duty of loyalty.”
If a worker who hasn’t signed an NDA announces her resignation, continues to work for a few days or weeks, downloads sensitive company information and then takes it with her on her last day, her employer can sue under this doctrine, which prevents workers from revealing company secrets while still employed. But companies “would have a more difficult time with that” than if they had an NDA in hand, Haberman said.
Schwarz agreed that suing under common-law doctrines to protect trade secrets or patents can, in the absence of an NDA, be a “tough argument to make” in court. He referred to the PhoneDog.com case, noting that the absence of an agreement made it hard for the company to defend its case.
How an organization approaches a departing worker is also key, Segal said.
“You don’t want to start off with, ‘We need you to sign this,’ because the person may say no. You start with, ‘You are required as a matter of law not to disclose trade secrets and other confidential information.’ ”
Dana Wilkie is an online editor/manager for SHRM.