6.02.2011

Is Social Networking Destroying Restrictive Covenants?

A year ago, a lawsuit filed in the U.S. District Court for the District of Minnesota by a staffing firm against a former employee hired by a competitor brought to the forefront the potential pitfalls of social networking sites in the context of restrictive covenants. In that case, TEKsystems, Inc. v. Hammernick, the employer alleged that its former employee violated the noncompete and nonsolicitation covenants in her employment contract by utilizing LinkedIn to connect with her former co-workers and clients. In particular, the employer claimed that the former employee used LinkedIn to connect with a current employee of the staffing firm to see if he was “still looking for opportunities,” and to invite him to visit her new office at the rival staffing firm.
The case has since settled by agreement of the parties. Had the case proceeded to a determination of liability, it seems pretty clear that the former employee’s direct solicitation of a current employee to visit her at the rival firm to explore “opportunities” would violate a nonsolicitation provision regardless of the medium of the communication. However, most cases involving challenges to social networking activities will likely not be as clear. For example, does a former employee’s mere “connection” with a customer or former colleague violate his or her restrictive covenants?  Is the connection acceptable if the former employee did not actively seek the connection but rather was “linkedin” by invitation of the customer or former colleague?  Can an employer’s client list or customer data be considered confidential trade secrets if it is readily available through a search of its employees’ profiles on a social networking site? 
Social networking sites such as LinkedIn have been referred to as modern-day Rolodexes because they allow users to “connect” to each other, which in turn enables them to review their “connection’s” information, including current job and contact information and a list of that member’s other connections. Members also get automatic updates when a connection updates his or her profile to reflect a new position. The popularity and ease-of-use of such sites has led many companies to encourage and, in some cases, require employees to utilize sites like LinkedIn to foster and cultivate relationships with current and prospective customers. However, the use of such online networking may come at a cost.  An employee may seek to avoid the obligations of restrictive covenants by arguing that client information cannot constitute a trade secret because it is publicly available through a search of her connections. Moreover, the employee may argue that the automatic notification sent to her connections, including customers, regarding her new position with a competitor did not violate noncompetition provisions of her employment contract because she did not actively communicate such information.
Most jurisdictions require that an employer prove that it has taken reasonable steps to protect its client data. This can be a difficult burden when the employer encourages employees to use such sites for marketing purposes. For this reason, employers seeking to protect confidential customer relationships should carefully consider whether use of such sites makes sense in their particular industry, and, if not, they should consider adopting policies that clearly advise employees that having clients as contacts on social networking accounts may constitute a breach of the employee’s confidentiality obligations. Additionally, when an employee terminates his or her employment, the employer may want to inquire in an exit interview whether any customer information exists on the employee’s social networking accounts, and ask that such information be removed.


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