Advising The Employee As To What May Be Taken Upon Departure From The Company

This article originally appeared in Orange County Lawyer, an official publication of the Orange County Bar Association, Vol. 38, No. 6, June 1996

An employee who is about to leave his company has developed expertise based on his experiences which, of course he may take. But what, besides memories, belong to the employee? Our Appellate Courts were initially very restrictive in blocking an employee from taking any tangible or intangible property from the employer; for instance. note the following holding:

“Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether lawfully or unlawfully, or during or after the expiration of the term of his employment.”

Reid v. Mass Company Inc., 155 Cal.App.2d 293, 300, (1957).

In the passage of 40 years, has the employee acquired greater rights to that which was produced by the sweat of his brow? This article explores what tangible and intangible property may be used by the employee without violating his duty of loyalty to the company from which he about to depart.

CUSTOMER LISTS AND OTHER TRADE SECRETS

When an employee leaves the company with the intention of competing against the former employer, there are restrictions on what he may take. Perhaps the most obnoxious type of employee is described in the case of Courtesy Temporary Service. Inc. v. Camacho, 222 CaI. App.3d 1278, 1286 (990).

Camacho and his cohorts set up a competing employment agency using the former employer’s labor force records and customer lists. The Appellate Court noted:

“….The trial court sarcastically found that [defendant] represented the ‘American Way’ by being a ‘small person who saved his money and went into business on his own in an attempt to make a life for himself and his wife by stealing, lying, and cheating’.”

Customer lists which identify sources of buyers by name, address, telephone number, and perhaps account activity, may contain trade secrets, and the removal of such lists by the employee can be enjoined under Business and Professions Code Sections 17200 et. seq., the Unfair Practices Act.

Sometimes an employee would seek to create his own records as a means of avoiding the bar against removing the employers’ records. However creating one’s own work product is not necessarily protected. In Vacco Industries, Inc.v. Vandenberg, 5 Cal. App.4th 34 (992), an employee spent six months examining components for the “quiet manifold on submarines” and listed the sub-parts on labeled index cards. The Appellate Court affirmed a jury award of damages. holding:

“We have no trouble whatever concluding that the defendants appropriated protectable trade secrets belonging to Vacco, whether common law or statutory standards are applied …”

5Cal. App. 4th at 51.

Trade secrets are defined in Civil Code §3426.1. Customer lists are not explicitly identified in the code section; however probably such lists, along with vendor lists and procedures for manufacturing or marketing are also protectable under the Uniform Trade Secrets Act, see American Paper and Packaging Products. Inc.v. Kirgan , 183 Cal. App. 3d 1318 (1986). It should be noted that the American Paper court held that although customer lists could be protected, in that case the lists were not protected because such customers were generally well known or readily ascertainable to other persons in the shipping business, 183 Cal. App. at 1326. Thus, in certain circumstances, where the information is not protectable as a trade secret an employee may be able to leave the company with more than the clothes on his back.

THE EMPLOYEE’S EXPOSURE TO DAMAGES

An employer who believes that an employee has pilfered trade secrets can pursue the employee for damages, injunctive relief, and attorney fees under the Unfair Practices Act, Uniform Trade Secrets Act, and/or at common law (such as fraud, interference with business relations and breach of contract). When an employee profits from the prior hard work of his employer, the employer’s remedy is the disgorgement of profits, see St. James Armenian Church v. Kurkjian 47 Cal.App.3d 547 (975).

Reliance on an attorney does not necessarily immunize the employee in an action brought by the former employer. Even an employee who writes down the employer’s customer’s names and telephone numbers from memory may be competing unfairly, see Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal.App, 3d 458, 462, (1978). There are restrictions on an employee competing with his employer following a substantial period of employment. When the employer expends substantial time, energy and dollars in developing a list of credit-worthy buyers, that information is protected and the employee cannot simply rely on his contacts which were developed during employment.

CONCLUSION

An employee violates no rule of law in forwarding his business card announcing intended future employment to his employers’ customers, even though he may be joining the competition. So long as there is no solicitation of future business, it is courteous and professional to advise one’s contacts of career progressions. Indeed, newspaper articles typically announce corporate turnovers at the higher echelons, such as to infer that the comings and goings of those employees on the “way up the ladder” are also relevant and noteworthy,

In an increasingly mobile society job turnovers are common. Competition against one’s former employer is also common, because a person skilled in one field is not likely to abandon his training and experience. Absent the unctuousness of a quid pro quo arrangement with the former employer’s customers, announcements and even telephone contact with a former employer’s customers should be both permitted and expected.