Welcome back as we continue Scott Morrisson’s insights into protecting your clients from a former employee’s wrongful competition. Scott noted last week that “Not all is lost if an employer does not have an enforceable agreement with its employees.” Those relative comments and an overview of The Indiana Uniform Trade Secrets Act appear at the bottom of this article. This week Mr. Morrisson shares a sampling of current legal actions pertaining to that improper competitive conduct:
Examples of Common Law and Other Claims
Breach of Fiduciary Duty
An employer/employee relationship is an agency relationship. The employee, as agent, owes the employer, as principal, a fiduciary duty. See, e.g., Potts v. Review Bd. of Ind. Emp. Sec. Div., 475 N.E.2d 708, 711-12 (Ind. Ct. App. 1985). Some courts have characterized this fiduciary obligation as a duty of loyalty. See, e.g., SJS Refractory Co., LLC v. Empire Refractory Sales, Inc., 952 N.E.2d 758 (Ind. Ct. App. 2011); Kopka, Landau & Pinkus v. Hansen, 874 N.E.2d 1065, 1070 (Ind. Ct. App. 2007); Davis v. Eagle Products, Inc., 501 N.E.2d 1099, 1104 (Ind. Ct. App. 1986). Regardless of the nomenclature, this common law fiduciary obligation prohibits the employee from competing with his employer prematurely or otherwise competing in breach of his duty to the former employer.
Computer Trespass and Tampering
A departing employee may expose himself to potential civil and criminal liability under Indiana statutory law by unauthorized retrieval or deletion of the employer’s computer data. An employee who knowingly or intentionally retrieves information from the employer’s computer system or network without the employer’s consent commits computer trespass, a Class A misdemeanor. Ind. Code§ 35-43-2-3. 1
Likewise, an employee “who knowingly or intentionally alters or damages a computer program or data, which comprises a part of a computer system or computer network without the consent of the owner of the computer system or computer network commits computer tampering, a Class D felony.” Ind. Code§ 35-43-1-4. See also Meridian Financial Advisors, 763 F. Supp. 2d at 1061 (observing that given the dearth of Indiana cases interpreting the computer tampering statute, it is unclear whether Indiana courts would construe such statute so broadly to include the deletion of email).
Given the ubiquity of computers in the modem workplace and the natural temptation for soon-to-be-departing employees to retrieve and/or delete useful computer data, employers should be mindful of the computer trespass and computer tampering statutes because they can provide a basis for civil recovery. Like criminal conversion, computer trespass (Ind. Code§ 35-43-2-3) and computer tampering (Ind. Code§ 35-43-1-4) are among the class of property crimes that may serve as a basis for a claim under the Indiana Crime Victim Relief Act, Indiana Code § 34-24-3-1. Thus, treble damages and attorneys’ fees may be recoverable.
Computer Fraud and Abuse Act
An employee or former employee who illicitly retrieves or deletes data from the employer’s computer may be subject to criminal penalties and civil liability under the federal Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030. Although the CFAA is primarily a criminal law intended to address computer hacking and other malicious interferences with computer systems, civil actions are authorized under certain instances. 18 U.S.C. § 1030(g).
The CFAA enumerates seven types of criminal activity relating to computers, including theft of computer data (18 U.S.C. § 1030(a)(2)), unauthorized access with intent to defraud (18 U.S.C. § 1030(a)(4), and unauthorized access resulting in damage to computer (18 U.S.C. § 1030(a)(5)). The civil action provision of CFAA, which allows for the recovery of “compensatory damages and injunctive relief or other equitable relief,” establishes a $5,000 minimum damages requirement as a jurisdictional threshold for most applicable violations. 18 U.S.C. § 1030(g); See also Meridian Financial Advisors, 763 F. Supp. 2d at 1061.
Claims under the CFAA often hinge on whether the employee’s access was unauthorized or exceeded applicable authorization. See, e.g., LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009); Airport Ctrs., LLC v. Citrin, 440 F.3d 418 (7’h Cir. 2006); Black & Decker, Inc. v. Smith, 568 F. Supp. 2d 929 (W.D. Tenn. 2008).
“A civil conspiracy is a combination of two or more persons who engage in a concerted action to accomplish an unlawful purpose or to accomplish some lawful purpose by unlawful means.” Boyle v. Anderson Fire Fighters Assn Local 1262, AFL-CIO, 497 N.E.2d 1073, 1079 (Ind. Ct. App. 1986). Lawful acts may thus become a conspiracy when they are committed in concert for an illegal purpose. Id. Indiana recognizes that “[t]here can be no doubt in this state that it is an actionable wrong to interfere, either directly or indirectly, with the business of another without cause or justification and that all parties to such combination are liable for the acts illegally done in pursuance of such conspiracy and for the consequent loss sustained, whether they be active participants or not.” Fort Wayne Cleaners & Dyers Assn v. Price, 137 N.E.2d 739, 742 (Ind. Ct. App. 1956). While a party cannot be liable for tortuously interfering with its own contract, the party can be held liable for conspiring with another to tortuously interfere with the contract. Allison v. Union Hosp., 883 N.E.2d 113, 118 (Ind. Ct. App. 2008). One often sees civil conspiracy claims brought when two or more employees leave, and on occasion, when claims are made against the departing employee and new employer.
An employer should not rely on the Indiana Uniform Trade Secrets Act or common law rights to the exclusion of a contractual covenant not to compete or other contractual agreements. The best way to prevent harmful competition by ex-employees is to utilize well-drafted noncompetition and related agreements. In those instances where a noncompetition agreement does not exist or is impossible to obtain (i.e., employee refuses to sign covenant not to compete), the Act, the common law, and certain Indiana statutes provide an employer with a limited measure of protection from competition by former employees, as well as additional potential remedies. Although these noncontractual claims may be more difficult for an employer to establish, they can, in certain instances, provide an employer with effective weapons to combat wrongful competitive conduct by former employees.
1 Indiana Code § 35-43-2-3 provides:
(a) As used in this section:
“Access” means to:
(3) Communicate with;
(4) Store data in;
(5) Retrieve data from; or
(6) Make use of resources of;
a computer, computer system, or computer network. “Computer network” means the interconnection of communication lines or wireless telecommunications with a computer or wireless telecommunication device through:
(1) remote terminals;
(2) a complex consisting of two (2) or more interconnected computers; or
(3) a worldwide collection of interconnected networks operating as the Internet
Thank you to Scott Morrisson for his valuable input on non-competition agreements and claims. For a comprehensive educational session in this area, register for the Covenants Not To Compete & Trade Secrets seminar. This CLE program is available either through as a Video Replay Seminar in your area or by watching an On Demand Seminar at your own computer. Click Here to make your choice of the version you prefer.
About our Law Tips faculty participant:
Scott S. Morrisson, Partner, Kreig DeVault, LLP, Carmel, IN – Mr. Morrisson’s main area of practice is civil litigation and litigation analysis involving a wide range of civil litigation matters. Particular areas of focus include employment, insurance, business, corporate, construction, trademark, tort, and ESOP litigation. He also focuses on arbitration and mediation. Mr. Morrisson has served as lead counsel on numerous jury trials, bench trials, preliminary injunction hearings, court hearings, and arbitrations in state and federal courts of Indiana and throughout the country. Additionally, he represents individuals and employers in negotiating, drafting, and evaluating Employment, Non-Compete, and related agreements.
About our Law Tips blogger:
Nancy Hurley has long-standing connections with Indiana lawyers. She was formerly a member of the ISBA and IBF staffs for over 30 years. Nancy’s latest lifestyle venture is with ICLEF. We are utilizing her exceptional writing and interviewing skills while exploring how her Indiana-lawyer background fits with ICLEF’s needs. When she isn’t ferreting out new topics for Law Tips, her work can be found in our Speaker Spotlight blogs, postings on the ICLEF Facebook and Twitter pages, and other places her legal experience lends itself.
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