“Memorized” Trade Secrets, Quirky Question # 69
One of our key employees recently took a position with a competitor. We do not believe that he stole any of our trade secrets by taking hard copies or electronic copies of our confidential information. We checked his computer and it does not appear that he downloaded any data or emailed any information that we consider our trade secrets. But, what if he simply memorized our trade secrets? Would we have any basis to seek injunctive relief to prevent him from sharing this information with our competition?
Roy’s Analysis:
The direct response to your inquiry is that you would have a basis to seek injunctive relief against your former employee, even if he only “memorized” your trade secrets and did not remove hard or electronic copies of your confidential data. To explain why I’ve reached that conclusion, let me address a few of the fundamental principles.
Since I practice out of Minneapolis, I’ll use the Minnesota Uniform Trade Secrets Act (“MUTSA”) as the pertinent statutory scheme. (The states that have adopted some version of the UTSA have slight variations on the uniform statute. Further, courts in these jurisdictions have interpreted the statutes somewhat differently. Thus, as I’ve stressed before, particularly in the area of employment law, you have to examine carefully the subtleties and nuances of the jurisdiction in which your dispute has arisen.)
The MUTSA sets forth a relatively straightforward statutory framework. The statute defines a trade secret as: “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(i) derives independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
In short, information may constitute a trade secret if: a) it is not generally known, or readily ascertainable; b) it has economic value to the company; and c) the company made reasonable efforts under the circumstances to maintain its secrecy.
In your question, you do not identify the type of information you suspect your former employee of misappropriating. It should be understood that the type of information involved may affect the issue of whether trade secret protection will be available. For example, imagine that a employee working for Coca Cola memorized the secret formula for Coke. Assume further that this individual tried to sell the secret formula to a Coke competitor. Most courts would hold that it mattered little whether the employee had written the formula on a piece of paper or memorized it. In either case, he would have misappropriated Coke’s trade secrets.
A closer question may be involved if an employee memorized customer information and shared that type of data with a competitor. Courts have reached differing opinions on whether customer information constitutes trade secrets. This analysis typically turns on the specific facts involved. Did the employee only take customer names? Is that information available through public sources (e.g., phone books, the Internet, trade association publications, etc.)? Did the employee take information other than customer names (e.g., past purchasing information, contract expiration dates, names/phone numbers/email addresses of key customer personnel)? Depending on how these and similar questions were resolved, a court may conclude that the customer data either did, or did not, constitute trade secrets.
As with so many other issues in employment law, competing principles are often at stake. In the Al Minor case, the court pointed to the conflicting principles involved – the protection of the employer’s rights in their trade secrets and the employee’s right to exploit his own talents. In Al Minor, however, the court resolved this conflict in favor of the employer. The Ohio Supreme Court stated, “we conclude that the determination of whether a client list constitutes a trade secret . . . does not depend on whether it has been memorized by a former employee. Information that constitutes a trade secret . . . does not lose its character as a trade secret if it has been memorized. It is the information that is protected by the UTSA, regardless of the manner, mode, or form in which it is stored – whether on paper, in a computer, in one’s memory, or in any other medium.” (Emphasis added.)
In sum, as the Ohio Supreme Court summarized well, information does not “lose its character” as a trade secret simply because it was memorized rather than recorded in some other fashion. Therefore, if the information your employee may be sharing with your competition would otherwise qualify as a trade secret, the mere fact that he memorized the data should not prevent you from seeking injunctive relief. In another Blog analysis, I’ll spend some time addressing the other issues relating to the basis for granting injunctive relief in misappropriation cases.
Withdrawal of Job Offer to Transsexual, Quirky Question # 68
Purely from a business standpoint, don’t you want to populate your company with the most talented employees you can find? Whether that talent derives from prior academic excellence, directly relevant work experience, outstanding interpersonal skills, or some other characteristic or qualification pertinent to the job requirements, these are the individuals who are going to make your company successful. Ideally, they will contribute to your firm’s bottom line and increase the collective wealth of your other employees and shareholders alike.
Since you have not identified the nature of the job for which this individual was hired, let me offer a few hypothetical examples. If the position you were filling was that of engineer, and the person you first hired and then rejected was a brilliant engineer, consider what could she have done for your company. If she had designed a new product, or improved an existing product, and your company’s revenues were substantially increased as a consequence, would it really have mattered that she had had a sex change operation? If the position you were filling was that of a salesperson, and the accepted/rejected applicant was an outstanding salesperson, with a proven track record who would have replicated her past successes at your company, would your sales manager have been concerned that she had had a sex change operation? If you were hiring an employee in the Human Resources function, and the rejected applicant could have assisted you both to improve your policies and to persuade disgruntled employees that they should not pursue litigation against your company, would your VP of HR have cared that she had had a sex change operation? As these and countless other examples illustrate, your decision to reject this applicant upon learning of her plans could have deprived your company of an outstanding contributor.
Moreover, simply because your company elected to withdraw the offer to her does not mean that one of your competitors will have the same attitude. Consequently, you not only have eliminated a potentially valuable contributor from your workforce, you have increased the likelihood that this talented individual will be competing against you. How will you feel if this employee designs a profitable product for your competition, or outperforms your “less qualified” hire in competitive sales opportunities?
I also wonder what “complications” you expected this “situation” to create. Were you concerned that your other employees would not accept this individual if they learned of her sex change operation? Was your concern based on empirical data or assumptions about how other employees would respond? As my questions imply, I don’t think you should necessarily expect a negative reaction by your other employees. Generally, it is preferable to give the situation a chance to unfold. If your company did encounter problems, you could evaluate them, assess their legitimacy, and with input both from your new hire and your other employees, explore thoughtfully whether they could be resolved.
But enough of my pontificating about the business aspects of this situation. Let’s examine the potential legal ramifications. First, as you undoubtedly know, Title VII, the principal federal anti-discrimination statute says nothing about transsexuals. Simply put, transsexuals are not a protected classification under the statute. Moreover, Title VII does not provide protection for individuals based on sexual orientation. The question, then, is whether Title VII’s prohibition against sex discrimination somehow reaches individuals who have elected to have a sex change operation. More on that issue below.
Second, although Title VII may not prohibit sexual orientation discrimination, many states (now more than 20) have statutes prohibiting discrimination on the basis of sexual orientation.
Third, as I’ve touched on in other Blog analyses, typically, when plaintiffs allege discrimination under federal or state statutes (or both), they also plead common law claims. Though more facts would be needed to assess this fact pattern, it is possible that the employee who was offered the job may have a claim for promissory estoppel. As you describe in your inquiry, the employee was offered a job, before you later withdrew the offer. If the employee quit another job, or took other actions in reliance on your offer (e.g., moved from another state, sold a home, etc.), she may have a legitimate promissory estoppel claim.
Let me now return to the potential statutory discrimination claims.
As referenced above, Title VII does not specifically protect transsexuals. But there have been a number of recent decisions that have relied on the United States Supreme Court holding in Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), a decision that held sexual stereotyping was barred by Title VII’s prohibition against sex discrimination, to extend Title VII protection to transsexuals. For example, in Lopez v. River Oaks Imaging & Diagnostic Group, Inc., No. 4:06-cv-03999 (S.D. Texas, April 3, 2008), the federal district court denied the defendant’s summary judgment motion in a case involving a similar fact pattern. Izza Lopez had applied for a position with a medical clinic that involved scheduling patient appointments over the telephone. The defendant clinic offered Lopez a job, which she accepted, after which she resigned from her existing job. In connection with the clinic’s background check, however, the clinic “discovered” that Lopez was “male” and allegedly had “misrepresented” himself as a woman during the interview. Lopez sued under Title VII.
Lopez did not argue that Title VII protected transsexual employees, instead arguing that that she was entitled to pursue a claim based on Price Waterhouse’s prohibition of sex stereotyping. The court agreed, observing “There is nothing in existing case law setting a point at which a man becomes too effeminate, or a woman becomes too masculine, to warrant protection under Title VII and Price Waterhouse.” The court also observed that the explanations offered by the clinic in support of its “misrepresentation” argument were questionable, but pointed out that these factual issues were not appropriate for resolution on summary judgment. The bottom line – the plaintiff’s Title VII lawsuit survived the defendant’s motion to dismiss.
Even more recently, the case of Schroer v. Billington, No. 05-1090 (D.D.C., Sept. 19, 2008), presented similar issues. Schroer applied for a position with the Library of Congress’s Congressional Research Service as a terrorism research analyst. Schroer was eminently qualified for the position: he had served in the Army for 25 years, during which time he had been in Special Forces units. At the time of Schoer’s retirement in 2004, he was the Director of a 120-person classified organization that tracked and targeted high-threat international terrorists. Among other responsibilities, Schroer regularly briefed the Vice President, the Secretary of Defense, and the Chairman of the Joint Chiefs of Staff. Schroer held a Top Secret, Sensitive Compartmented Information security clearance. Schroer also held Masters Degrees in History and International Relations and had graduated from both the National War College and the Army Command and General Staff College.
At the time Schroer interviewed for the job, he presented as a male. He was deemed to be the most qualified applicant and was offered the job. At a luncheon following the communication of the job offer, Schroer advised his new employer that he was about to begin the phase of his gender transition in which he would be dressing in traditionally feminine clothing and presenting as a woman on a full-time basis. Based on this information, the defendant withdrew the job offer.
The case was tried to the federal court. The defendant articulated five reasons why it had withdrawn the job offer to Schroer; the court found all five were pretextual. The court also held that whether analyzed under Price Waterhouse’s sexual stereotyping analysis or a strict reading of Title VII’s prohibition of sex discrimination, Schroer had proven a claim. As the court observed, “What makes Schroer’s sex stereotyping theory difficult is that, when the plaintiff is transsexual, direct evidence of discrimination based on sex stereotypes may look a great deal like discrimination based on transsexuality itself, a characteristic that, in and of itself, nearly all federal courts have said is unprotected by Title VII.” Despite the difficulty of this issue, the court found that it did not matter for purposes of determining liability whether the Library of Congress withdrew its offer of employment because it “perceived Schroer to be an insufficiently masculine man, an insufficiently feminine woman, or an inherently gender-nonconforming transsexual.”
Not only did the court find the defendant had engaged in sex stereotyping in violation of Title VII, it also found that Schroer had established a direct violation of Title VII. The court heard competing expert testimony of experts, one of whom testified that the scientific community recognizes “nine factors that constitute a person’s sex.” (Who knew? I always thought it was a much simpler calculus.) Pointing out the statutory prohibition of sex discrimination has been given a more expansive interpretation by the courts (e.g., includes sexual stereotyping and same-sex sexual discrimination), and drawing an interesting analogy to religious discrimination and the prohibition against discriminating against someone who “converted” from one religion to another, the court found that Schroer had established sex discrimination under Title VII.
As these cases illustrate (and there are other cases reaching opposite conclusions), withdrawing a job offer to someone who advises you that she is a transsexual is not without legal risks. Thus, even if you are unpersuaded by the business justifications addressed above, there are some legal risks to which your decision exposes your company.
Although beyond the scope of this analysis, I also have concerns that your decision would present potential risks based on state anti-discrimination statutes prohibiting sexual orientation discrimination. There is a risk that your withdrawal of the job offer could be viewed as sexual orientation discrimination. More facts would be needed to develop this issue further, including the reasons articulated for why the offer was withdrawn and other relevant information regarding the composition of your workforce and past hiring patterns, to name just a few. Whether you ultimately won or lost a claim for sexual orientation discrimination, however, you certainly risk the possibility that such a claim would be asserted.
Scope of Relief in Sexual Harassment Cases, Quirky Question # 67
Let me start with the basics. As you undoubtedly know, sexual harassment is prohibited by Title VII. But, a Title VII claim is not the only cause of action that will be asserted and is not the only claim about which you need be concerned when trying to evaluate the risks your company is confronting.
As these examples demonstrate, the scope of liability you confront will depend on the nature of the underlying conduct and the resultant claims that are asserted. Without knowing a bit more about your factual pattern, it is difficult for me to provide you too much specific information about the nature of the damages and/or other relief you confront. But, with that caveat, here are a few thoughts for you to consider.
First, under the statutory schemes (whether federal or state), defendants typically confront the possibility of back pay. In contexts where an employee alleging harassment has been terminated (either actually or “constructively”) back pay simply represents the salary and other benefits that the discharged employee would have received from the date of the discharge through the date of trial. Of course, plaintiffs typically will seek the monetary equivalent of all the benefits an employee would have received but for her discharge (e.g., health, dental, and life insurance; 401k contribution or other equivalent retirement plan contribution; automobile and/or auto allowance; vacation and/or PTO days; payments for educational programs for which the employee was eligible; and various other perquisites unique to the company involved). The amount of back pay is offset by the sums earned by the employee in other employment following her discharge.
Third, depending on the nature of her injuries (including psychological or emotional injuries), a sexual harassment plaintiff may be entitled to pain and suffering or emotional distress damages. These damages, which are capped under the federal statutory scheme, may be largely unlimited under state statutes or under common law legal theories.
Fourth, a plaintiff-employee may be entitled to recover exemplary (or punitive) damages. Again, these damages are capped under the federal statutory scheme (depending on company size, they can be as much as $300,000), but they may be unlimited under parallel state statutes or the common law claims asserted by the harassment victim. Some states, however, also limit the punitive damages under their anti-discrimination statutes, so this issue needs to be examined on a state-by-state basis. Keep in mind too that the statutory caps are per plaintiff. Therefore, if you had five plaintiffs who were affected by the conduct you alluded to, and your company had 500 or more employees, you would be exposed to potential punitive damages of $1.5 Million. (If you would like to see additional analysis of punitive damages in sexual harassment cases, see Quirky Question # 56.)
Fifth, although the federal statutory scheme of Title VII does not allow for doubling or trebling of compensatory damages, some state statutes do provide for this type of recovery. Again, it is critical to examine the statutory scheme under which the claim is asserted to fully appreciate the potential exposure associated with a particular claim.
Seventh, the statutory schemes are “fee shifting” statutes. A prevailing plaintiff typically is entitled to recover her attorneys’ fees. (Alas, the same is not true for the prevailing defendant.) At times, the attorneys’ fees incurred in the pursuit of a plaintiff’s claim may exceed the compensatory damages to which the plaintiff is entitled.
As you can see, the seven categories discussed above relate to the potential financial risk your company may confront when faced with a sexual harassment case involving egregious conduct. Courts, however, also may impose other types of non-monetary penalties on companies that disregard their obligations under Title VII. These kinds of penalties may be quite diverse, depending on the imagination of the federal judge. They include, by way of example, ensuring that the federally mandated posters are displayed prominently in a company’s lunchroom, conducting periodic training sessions on sexual harassment, monitoring future claims with corresponding reporting requirements to a special master or other court-appointed official, etc. In some circumstances, a court may order “reinstatement” of a discharged employee.
As you can see from the discussion above, when egregious sexual conduct occurs, a company confronts serious financial damages and potentially onerous injunctive relief. You have a sobering message to deliver to your management.
Domestic Abuse and Wrongful Discharge, Quirky Question # 66
One of our employees recently advised us that she and her two children were suffering from domestic violence by her husband. She requested us to provide her time off to move herself and her children out of the abusive situation at her home. Frankly, we were somewhat skeptical so we denied her request. Not long thereafter, her husband beat up one of her children so severely that he required hospitalization. Again, she requested time off to move herself and her children, this time into a shelter. Needless to note, we felt very badly about what happened and granted her request.
About a month after returning from leave, her supervisor demoted her. A few months later, he discharged her. She is now suing our firm for wrongful termination in violation of public policy? Is this a legitimate claim in Washington? If so, what are our risks.
As you may have recognized, the situation described in this question parallels a case decided by the Washington Supreme Court on October 3, 2008. In Danny v. Laidlaw Services, the Court ruled that Washington has “a clear public policy to prevent domestic violence.” In Danny, the plaintiff and her five children had experienced ongoing domestic violence at the hands of her husband, resulting in her son being hospitalized. She requested time off from work twice and was at first refused. Following the hospitalization her son, however, the company granted her request for time off. About a month after she returned to work, she was demoted, and in December, she was terminated. She then brought a lawsuit, alleging that she was wrongfully terminated in violation of public policy.
Against this backdrop, the Washington Supreme Court held that the state’s policy of domestic violence prevention is “truly public” in nature, and that this, coupled with Washington’s Executive Order 96-05 which directs each state agency to create workplace environments that provide “assistance for domestic violence victims without fear of reproach” and notes that domestic violence causes “loss of productivity, increased health care costs, increased absenteeism, and increased employee turnover,” was sufficient to support a finding of public policy to prevent domestic violence.
The Court did not leave this public policy unlimited, however. In other words, an employee’s notification to his or her employer of domestic violence is not carte blanche to take unlimited time off from work. The Court specifically stated that in order for Danny to prevail on her claim of wrongful discharge in violation of public policy, she still must meet the remaining three essential elements of the claim: a) jeopardy; b) causation; and c) absence of justification. In this case, Danny would have to show that the time off she took was the only available adequate means to prevent the domestic violence against herself or her children or to hold her abuser accountable. Some examples of situations which would likely meet this threshold are:
Retaliation for Participating in an Investigation, Quirky Question # 65
Our company has made concerted efforts to encourage our employees to report incidents of possible discrimination. Our HR Department is responsible for receiving and investigating discrimination complaints. Through our internal investigation efforts, we have been able to head off possible litigation and address potentially serious problems.
On the flip side, however, the internal investigation process has given rise to some personnel management issues. Just recently, for example, an employee with existing performance issues was interviewed in connection with an internal investigation. She provided information corroborating another employee’s discrimination complaint.
Last week, the manager of the employee who was interviewed approached HR about terminating the employee because of her performance issues. The manager is adamant that this employee must be discharged. HR, however, is concerned that terminating her now, just weeks after she provided troubling information during an internal discrimination investigation, might be considered retaliatory. Complicating the issue, the manager who is insisting on firing her is good friends with the person about whom she provided damaging information. Maybe this just was coincidental.
It appears that the employee’s performance problems are fairly well documented and support a termination decision. Can we go ahead with the termination without violating the laws against retaliation? Would it be better to let more time pass before we terminate her? Do we need to treat employees with “kid gloves” once they participate in investigations, or are we safe to proceed with business as usual? Help!
Jim’s Analysis:
The circumstances you find yourself in are increasingly common for employers these days. Internal efforts to investigate and address discrimination complaints are often rewarded with retaliation claims by the complaining employee or persons who provide information that is not helpful to the company’s position in the course of the investigation. Often times, an employer’s most significant potential liability lies not with the underlying complaint that spurred the investigation, but rather with retaliation claims brought by the complainant resulting from his or her treatment following the complaint. Occasionally, retaliation claims are brought by someone who participated in the investigative process. The ever-present prospect of such claims presents the employer with difficult challenges requiring thoughtful and careful management.
As an initial matter, the proliferation of retaliation claims might lead an employer to conclude that it would be better off if it did not thoroughly investigate discrimination or harassment claims. That would be a big mistake. Having in place an effective mechanism for identifying, investigating and addressing instances of potential harassment and/or discrimination is a critical step in both limiting an employer’s exposure to litigation – as your company’s experience reflects – and defending against claims if litigation ensues. The “Faragher and Ellerth” affirmative defense, delineated by the Supreme Court in 1998 through two companion cases (Burlington Indus., Inc. v. Ellerth and Faragher v. Boca Raton), allows an employer to avoid hostile work environment liability where (1) the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (2) the plaintiff employee unreasonably failed to take advantage of any protective or corrective opportunities provided by the employer or to avoid harm otherwise. The availability and application of this affirmative defense present a myriad of fact-based and legal issues beyond the scope of this analysis. For present purposes, it suffices to say that all employers would be wise to implement and effectively communicate discrimination and harassment policies; train employees on the policies; establish effective internal complaint procedures; promptly and thoroughly investigate complaints of sexual and other harassment; and take appropriate remedial action when warranted.
Turning to the situation you have described, your HR folks are right to be concerned about a potential retaliation claim if you proceed with termination. That is not to say that the employee’s participation in the discrimination investigation should serve to insulate her from disciplinary action, including termination, based on her poor performance. But extra care must be taken to ensure that you can defend the termination decision, particularly in light of the relationship between the manager pushing for the termination and the individual about whom the employee provided damaging information. There are several, additional pieces of information I would like to know before providing any definitive advice as to this employee’s potential termination.
First, what does the manager know about the internal investigation? Does he know that the employee was interviewed? Does he know what the employee said, or that she provided damaging information regarding his friend? Has the manager spoken with his friend, the target of the investigation, regarding the results of the investigation? Who within the company is privy to the results of the investigation? If you proceed with the termination, your ability to defend against a retaliation claim will be enhanced if you can demonstrate that the manager was isolated from the investigation and that he had no knowledge of the information provided by the employee.
Second, have other employees reporting to this manager participated in the investigation and, if so, have any of them provided damaging information? Assuming that other employees under this manager have been involved, are they the subject of any active or potential disciplinary action based on their performance? The fact that others who participated in the investigation, including some who conveyed damaging information, have not faced disciplinary action should help demonstrate that the termination decision was prompted by the employee’s poor performance and not her participation in the investigation.
Third, has this manager and the company as a whole been consistent in dealing with the kinds of performance problems underlying the current termination recommendation? Will the employee be able to point to others with similar performance issues who have not been terminated or subjected to disciplinary action? If there are such similarly situated employees, what work-related factors distinguish their situations from that of this employee? If it appears that the company has accorded others more favorable treatment, such as a greater opportunity to correct their poor performance, terminating this individual’s employment on the heels of her participation in the discrimination investigation may well be construed as retaliatory.
Fourth, are the performance shortcomings underlying the termination recommendation objectively verifiable? Here, as in other situations, disciplinary decisions premised on objective performance criteria – e.g., sales goals, productivity measures, etc. – are easier to defend than actions based on purely subjective performance assessments.
Fifth, do other management personnel support the termination recommendation? This gets to who owns the termination decision within the organization. The broader the support for termination, the more difficult it will be for the employee to establish the necessary causal relationship between the termination decision and her sharing damaging information about her manager’s friend. In a situation such as yours, where the manager recommending termination is a good friend of the person about whom the employee provided damaging information, it would be prudent to have another manager with knowledge of the functional area review the employee’s situation and make an independent disciplinary recommendation.
Sixth, are there any facts that tend to suggest that the timing of the termination decision is suspicious? For example, if the employee’s performance should have resulted in her termination one or two months ago, prior to her participation in the discrimination investigation, why didn’t the manager go forward with the termination at that time? What has occurred in the interim that demonstrates that this is a performance-based decision and not retaliatory?
All of these questions are geared toward identifying potential weaknesses that might be exploited at a later date by the terminated employee’s lawyer. If the information you have gathered after considering these issues warrants immediate termination, then the fact that the employee recently participated in a discrimination investigation should not dissuade you from that course of action. Treating the underperformer with “kid gloves” merely because she participated in an internal investigation is not a good idea. It sends the wrong message to your workforce and sets a poor precedent that will only serve to make it more difficult to effectively manage your business and employees. If, on the other hand, potential problems surface in response to these inquiries, it may be more prudent to continue or impose disciplinary action short of termination.
Given the nature of your questions, you will be interested in the outcome of a case now before the Supreme Court. In Crawford v. Metropolitan Government of Nashville and Davidson County, Tennessee, the Supreme Court has been asked to assess whether the anti-retaliation provisions under Title VII extend protection to employees who participate in an employer’s internal investigation. Crawford was fired shortly after she was interviewed as part of an investigation of another employee’s sexual harassment complaint. In the interview, Crawford told the company investigator that she, too, had been sexually harassed by the school district’s employee relations director. The Sixth Circuit affirmed the dismissal of Crawford’s retaliation claim, concluding that participation in a purely internal, in-house investigation, in the absence of any pending EEOC charge, is not a protected activity under Title VII. The Sixth Circuit also concluded that merely cooperating with the employer’s investigation by appearing for questioning, and relaying unfavorable information in response to the questions posed, does not constitute the type of over opposition to prohibited conduct required to trigger Title VII’s protections against retaliation. The court reasoned that the fear of potential retaliation claims by every person interviewed as part of an internal investigation would dissuade employers from conducting thorough, internal investigations.
The Supreme Court heard oral argument in the Crawford case on October 9. A decision is anticipated in the near future so stay tuned.
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