

A touchy legal problem with LinkedIn and restrictive employment covenants - grellas
http://www.noncompetenews.com/post/2010/10/03/LinkedIn-A-Violation-of-Your-Employeee28099s-Non-Compete.aspx

======
tptacek
I'd bet most people on HN think this is lunacy, because most of them aren't in
situations where client lists are truly confidential. As a salesperson, when
you add a client contact to your LinkedIn profile, you're putting your
employer's client list in your "back pocket" (as it were). This isn't
ambiguous; the fact that you've shopped your employer's client list piecemeal
instead of all at once doesn't make it better.

What makes this a sticky issue is that your employer probably _wants_ you to
groom a LinkedIn rolodex, because they're helpful for selling.

~~~
grellas
Excellent points.

I'll add a few points from a California law perspective:

This is one area of trade secrets law that often catches employees by
surprise. Most employees who have substantial contact with customers (e.g.,
those doing sales) merely assume that the information relating to those
customers belongs to them. In the past, they used to keep such information in
a day book, today perhaps on some electronic device. As such employees
interact with the customer representatives, they often develop close
relationships with them, sometimes becoming personal friends, etc. From this,
they come to assume that this network of contacts is a personal asset that
they can take with them wherever they go for future business purposes.

The law sees it differently, however, even in California where restrictive
covenants are normally highly disfavored. The legal theory is generally as
follows: as long as an employer pays the salary of the person who is
interacting with its customers, the information gleaned from those contacts -
to the extent it is not otherwise publicly available in convenient form -
becomes confidential, proprietary information belonging to the employer. This
can sometimes include the identity of the customer itself, though not when it
is widely known in the industry who such customers are. Even in such cases,
however, the particulars associated with those accounts - i.e., the names and
contact information of actual customer representatives, information relating
to a customer's buying needs or to pricing or to any similar item that is or
may be valuable for an employer to know concerning the relevant market and
which is _not_ publicly available - do tend to be treated as employer-owned
confidential information and any former employee who attempts to use such
information to the competitive disadvantage of the former employer can
potentially be sued for misappropriation of trade secrets and unfair
competition. The theory is that the employer makes a significant investment in
assembling such information by paying the salaries of its sales team and the
like and no employee should simply be able to rip it off for nothing and use
it competitively against the employer who paid to assemble it. This is where
many employees miss the point: they see their contacts as belonging to them
("these are my customers") when in reality they may be quite restricted in
what they can do with such information as long as they obtained it while being
paid a salary by some employer.

Of course, in traditional sales and similar areas, the lines tended to blur in
economic reality. For example, an employer hires an experienced sales person
in x industry. The very purpose of doing so is to gain the benefit of that
persons substantial contacts. When that sales person is hired, the customer
information he brings with him does _not_ become the property of the employer
simply because he happens to have gotten that job - indeed, all such
information continues to belong to him and is merely being made available for
the benefit of his employer during the term of the employment. On the other
hand, if that very person then works for a decade in that position and thereby
obtains a much expanded set of customer information because of things done on
that job, that expanded information set can be treated as proprietary
information belonging to the employer. Thus, in theory at least, once that
employee leaves that job, he can freely use all his pre-employment customer
information but may well be restricted in using the information he learned
while employed on that particular job.

One can posit all sorts of variations on this arrangement by which
complications are injected (e.g., if someone is an independent sales agent and
not an employee, who owns the information? or if an employer makes the
information company-wide on a database without placing special restrictions on
who can use and for what purpose, is it still to be regarded as
"confidential"?). The lines can easily blur, making it hard for an employer to
claim that certain information is "proprietary" and belongs to the employer.

In our modern, inter-connected world, LinkedIn and similar services have
created a real problem for employers seeking to enforce these traditional
restrictions on an ex-employee's use of customer contact information, in some
cases making it virtually impossible for an employer to stop such contacts.

This piece discusses some of the legal attempts being made by employers to
block use of LinkedIn, etc. as a way of making contacts with customer
representatives of the former employer. Basically, such services have thrown
this area of law into chaos and this is the employers' attempts to restore
control consistent with the past practices of a much less inter-connected
world, i.e., to use contract language as a way of _legally_ reasserting
control over a situation that was practically out of control.

In states like California, this is likely a losing fight but perhaps not so
much in other states where restrictive covenants are more strongly upheld. It
will be interesting to see how this develops over time.

~~~
tptacek
I work in a field where these are bright-line issues. In software security,
client relationships are often covered by explicit per-client confidentiality
agreements. Disclosing prior relationships can kill long-term contractor
arrangements. Anyone who's ever been involved in an M&A project probably has a
similar appreciation for the problem.

I think LinkedIn actually may make this easier for employers in some respect,
because it datestamps the links and makes it clear who was part of a
salesperson's prior rolodex and who's a contact made by/for the company.

~~~
btilly
If you link on LinkedIn while you're covered by explicit per-client
confidentiality agreements, I think I see where the problem is. If you don't
do that, then I don't think a problem exists.

------
sportsTAKES
I refused to sign the non-compete that my current company asked me to sign. It
was a deal breaker for me.

And a former company asked me to sign a non-compete after I had been there for
a year. No chance, didn't sign.

It's obvious why companies have non-competes but unless the position you are
applying for is going to pay you sufficiently to where you don't mind staying
on the sidelines for six months, or even a year, (think C level) I see no
reason why you would give your employer that kind of leverage over you.

~~~
tptacek
This is a stance that makes sense if you're a back-office or research
employee, but makes less sense if you're customer facing.

~~~
sportsTAKES
I'm in sales so I'm customer facing.

I'm just saying that you are basically asking your employee to not work for
the duration of the non compete clause.

I don't see how that's acceptable for people unless they are earning so much
that it's a reasonable compromise they make in order to get that job.

My company pays me fairly, they've been really good to me. But not enough to
where I can not work for six months if I ever choose to leave.

~~~
tptacek
That's interesting, because it seems to me that sales (RM/AM) work is one of
the few places where there's a bona fide need for (appropriately narrowed)
noncompetes.

How can it possibly be reasonable for a company to invest millions in lead gen
and awareness campaigns, double (or even triple) you up with sales support
(SE's, PM's, postsales), sponsor conferences, and fund expense accounts, only
to have you walk the resulting client list to a direct competitor when you get
in a fight over what your yearly number should be?

I don't know you personally, so this obviously has nothing to do with you, but
it was my perception that most sales staff worked under noncompete. We're
hiring sales right now, so maybe I'll find out otherwise.

~~~
sportsTAKES
You have some good points. But there is another side to consider...

In my case, in large part I was hired specifically for the customer contacts
that I brought with me. So for my company to tell me that I could not work for
a competing company in my industry, specifically not selling to those same
customers, seemed totally unreasonable to me.

I decided to hold my ground on this one (at the risk of maybe not getting the
job) but in the end, my company agreed to pass on the non-compete. Two years
later, I'm really glad they did, I hope they're happy too.

If you're hiring sales people now, chances are you'll want people with some
experience and or contacts in your industry. That's one of the primary reason
to hire certain sales people.

(Also, I am not opposed to companies that require confidentiality from their
employees (e.g., IP). There is probably some reasonable legalese that you can
write into an employee's contract in that regard.)

Your company's situation might be entirely different but that is my
experience.

Happy hunting on the hiring.

~~~
rbranson
You hit the nail on the head. It's ridiculous for them to expect you to hit
the ground running with the network you've established while working for
former employers, but then be unable to carry your network with you onto new
employers. It's absurd, hypocritical, and reeks of bad attitude.

It would be like asking for software developers with 4 years of experience,
and then turning around and expecting them to unlearn the skills and
connections they picked up during their time at your company, just because
they're working for a competitor.

------
lorax
From the article: "many, though admittedly not all, courts have held that
contacting former clients regarding a change in employment constitutes a
solicitation. See e.g., Merrill Lynch v. Schultz, 2001 WL 1681973, *3 (D.D.C.
2001) (noting that “such initiated, targeted contact is tantamount to
solicitation because there is no reason to believe that a customer on the
receiving end of such a [communication] does not assume that the [employee]
wishes for him to transfer his account.”)."

This reasoning doesn't necessarily hold for linked in. If a person has lots of
contacts on linked-in, some of which are customers and some of which aren't,
changing your employment status isn't targeted, wasn't specifically initiated,
and can't be assumed to be a solicitation.

------
jrockway
This is why I don't like small companies; the owners read blog posts like this
and then add "social media clauses" to their employment agreements.

I think the counter is to get employees to ask for salary for 2x the length of
the noncompete period. Sure, I won't solicit your customers for 6 months after
I quit. Because I'll be taking a one year vacation at your expense.

~~~
elai
Has anyone ever gotten something like this unless they were the only practical
choice and they could dictate terms?

