Contact lists are a classic form of “confidential information” or trade secrets.  Trade secret law is one of the few areas of intellectual property law which is not governed by federal statutes:  trade secrets and confidential information are protected by state law.  This means that the law varies from state to state.  However, most states closely follow the definitions and principles of the Uniform Trade Secrets Act and the Restatement of Torts.  According to the Restatement, a trade secret

may consist of any formula, pattern, device, or compilation of information which is used in business and which gives [the business] an opportunity to obtain an advantage over competitors who do not know or use it.

Restatement of Torts 2nd, section 757.

Written agreements and NDA’s with employees typically cover contact lists and other confidential information
Most employers require their employees to sign a written confidentiality agreement or nondisclosure agreement (NDA).  These agreements require the employee not to disclose trade secrets and confidential information, and also not to use any confidential information in any manner except for the benefit of the employer.  This includes any use in a subsequent job.  Well-drafted NDA’s will continue to be in effect even after termination, to provide continuing protection by contract.  Employees taking email lists, electronic documents, photocopies of information, customer or supplier contacts, or pricing information will be potential targets for a lawsuit for breach of contract.   If an employer suffers lost profits, or the secret status of a valuable formula or strategy is made public and devalued, the employee could be liable for tens of thousands of dollars in damages.

State laws protect confidential information and trade secrets even where there is no written agreement
While the law favors the protection of confidential information and trade secrets by written agreement, most states protect this form of intellectual property against disclosure or use, even in the absence of a written agreement.  Employees frequently assume that the lack of a written agreement means that information is free to use.  Most states have statutes on the theft or misappropriation of trade secrets.  In most states, an employer must only show that (1) the information incorporates a trade secret; (2) the employer took reasonable steps to preserve the secrecy of the trade secret; and (3) the employee misappropriated the secret or used improper means, in breach of a confidential relationship, in order to bring a successful lawsuit against the employee.

Michigan trade secret law
A famous Michigan case illustrates the dangers of employees providing confidential information to third parties.  In 1999, a website operator named Robert Lane was sued by Ford Motor Company for posting confidential documents and photographs on a website.  The confidential information was provided to Lane by current and former employees, in violation of their employment confidentiality agreements. Was Lane himself an employee, or former employee?  No.  Had he signed a written agreement with Ford Motor Company regarding its confidential information?  No.  Nevertheless, the court held that Lane had probably violated the Michigan Trade Secrets Act.  See Ford Motor Company v. Lane, 67 F. Supp. 2d 745 (E.D. Mich. 1999), for details.

Not all information disclosed in confidence may be protected
Employers typically claim that any business-related information is “confidential information” or a trade secret.  The law does not reach that far.  Information which will not be protected, even if spelled out in a written agreement, includes information which:

• enters the public domain through no wrongful act of the employee
• is received by the employee from a third party without similar restrictions regarding non-disclosure
• is furnished to a third party by the employer, without similar restrictions regarding non-disclosure
• is approved for release by written authorization of the employer
• was possessed by the employee prior to the effective date of employment, or a written agreement
• is developed by the employee independently of confidential information received during the employment relationship

Attempts by the employer to protect this information will typically fail.   Written contract terms which do not exclude these common law exemptions from coverage are against public policy and are typically not enforced by courts.

Confidential information must be maintained “confidential” to qualify for protection
The most common mistake made by employers is to require all employees to sign a confidentiality agreement or NDA, but then fail to exercise the ordinary care required to maintain the “secret” status.  Publishing “confidential information.”  The best way to meet the requirement to preserve confidentiality, is to require a written agreement with every party coming into contact with the protected information.  Allowing one employee to take a contact list to a subsequent employer will result in a loss of protected status for that information.

The cat’s out of the bag?  There still may be liability
Keeping this legal framework in mind, it might seem like a trivial exercise to avoid liability:  merely make the information public, and then it’s no longer protected under the law.  While public disclosure may result in a loss of trade secret status under the law of many states, the law may still be enforced against the wrongful discloser — and in many cases, even against a third party, where the party had reason to know that the information was considered to be a trade secret.

Written NDA’s and Confidentiality Agreements make responsibilities clear
The basic function of a contract is to clearly set out the ground rules for a commercial relationship in order to avoid costly legal disputes that might arise from different interpretations of the law.  In the confidential information and trade secret arena, there are fifty states, so there are fifty different laws, and as many or more interpretations.  Given the patchwork nature of the common-law and statutory framework in protecting business information, while employers without written agreements may ultimately be able to enforce their intellectual property rights against employees in the absence of a written agreement, it’s foolish not to have one.

Resources

• The Citizen Media Law Project:  Misappropriation of Trade Secrets
• The Citizen Media Law Project:  State Law — Trade Secrets
• Michigan Uniform Trade Secrets Act

“At will” employment is the rule, not the exception
In most cases, an employment agreement is going to be what we call an “at will” agreement: the employee is employed at the will of the employer — and can be let go at any time, at the will of the employer. What if there’s a written agreement, but it doesn’t specify whether employment is “at will”? If the employment agreement doesn’t specify that an employee can only be terminated “for cause,” then the employment agreement is “at will.” At will employment is the default in most states (Michigan included).

Some written employment agreements specify that an employee may only be terminated for cause. Barring special circumstances (such as employment under a union or other associational agreement), termination “for cause” must be spelled out in writing in the terms and conditions of the employment agreement. The employment agreement should have a termination section that indicates when an employee can be terminated “for cause,” and it should contain a definition of the causes that justify termination within the agreement. (Note to employers: acts justifying termination for cause should be clearly spelled out. This benefits the employer as well as the employee, and avoids having a court modify the employment agreement in a legal dispute.)

Employment agreements which can only be terminated for cause are frequently used in a wide variety of industries and situations. For cause agreements are used for key employees in technology companies, founders and managers in startup ventures, professionals in finance and accounting, doctors and lawyers, and employees in unionized businesses and companies. For cause employment contracts are typical where the employee has more leverage than an ordinary worker and cannot easily be replaced.

There’s no employment contract
There is always a contract between a worker and a hiring party — even if there’s no written agreement. In the absence of a written contract, employment is always “at will”: the employee can be let go immediately. Unless, of course, the employee isn’t really an employee — many business owners are shocked to find out that in the eyes of the IRS and/or the state department of labor, their ‘contractors’ are really employees, or vice versa. If you’re the employer in this situation, ‘misclassification’ of an employee as a contractor is a very expensive mistake.

“Two weeks’ notice”
Many people believe that a company or employee owes the other party “two weeks’ notice” for terminating the work relationship. That’s not a legal rule, it’s a conventional practice. “At will” employees can be escorted off the premises immediately upon notice of termination, with an arrangement to pick up their belongings at a later time. While this can come as a shock to the employee, it’s something that attorneys routinely recommend to employers as a standard employment policy, for security reasons.

If you’re unemployed or looking to re-educate and change careers, you can identify training opportunities for green jobs by county or region.

If you have a business, the No Worker Left Behind program will assist you in moving into green industries — by providing consulting and employee training resources to facilitate the development of employee skills and expertise for green jobs within your company. Here’s a resource page containing links to several local and regional green initiatives. There’s a mailing list to receive information about green jobs in Michigan here.

In the Fagin case, a Michigan court decided that a contract can shorten the period of time for starting a lawsuit–to a period much shorter than the period automatically provided by law. Fagin was an employee who consulted a lawyer and decided to bring a lawsuit after termination of his employment. Fagin had signed a standard employment agreement that contained a provision limiting his time to sue to 12 months from the date of his termination. He started the lawsuit more than a year after he was fired. The court said that he was too late–the contract he signed was effective in reducing his time to sue.

Huh? What’s a limitation period?
The “limitation period” for a lawsuit is a highly technical and frequently misunderstood concept in law. Most of the public thinks that a company or individual can bring a lawsuit pretty much any time–this myth is fueled by media reports of “new evidence” leading to murder charges, war crimes, and other criminal accusations which are sometimes re-opened or brought by a prosecutor decades after the act.

In civil lawsuits, the limitation period is a statute that cuts off the time to sue. It’s a different time length for each different type of claim. So, for example–Michigan law says that a party to a contract has a six-year limitation period to start a lawsuit for violating the terms of the contract. The statute of limitation for medical or legal malpractice is two years; for copyright infringement it is three years; for criminal copyright prosecution it is five years. While civil law limitation periods are pretty similar throughout the US, they do differ from state to state. So, it’s important to know which state’s law applies to a contract, to understand how much the time to sue has been shortened. Six years is a pretty long time to think about liability–so many employers and small companies have contracts that limit the time to sue to a much shorter period, like one year. If a contract is silent on the topic, the period provided by law automatically applies.

The court in Fagin was considering a lawsuit based on employment. Employment is a contract between two parties, whether or not there is a written agreement. The automatic limitations period would have given Fagin a full six years–except that the terms signed by Fagin contained language limiting the right to sue to only one year. (This issue is usually buried in the boring stuff near the end of the contract.) The court held that one year was reasonable (but that it wouldn’t have been, if there was not adequate time to research and file a lawsuit). How short is too short? Other Michigan employment cases have held that a limitations period of as little as six (6) months can be reasonable! This is not very much time to find and hire a lawyer–and evaluate whether there is a good case or not–and file it.

“I Didn’t Read The Contract” Didn’t Work
What about Fagin’s claim that he hadn’t read the contract completely and didn’t notice or understand the limitation language? Well, that one didn’t work. Neither did the argument that Fagin didn’t have a choice and had to sign the contract “as is”, or he would have lost the job. The court found that Fagin had been given time to read the contract and even consult a lawyer to help interpret it if he wanted. The choice to accept the job or not, with the required contract, was his. The contract even contained language that Fagin’s signature meant that he had “read and understood” the whole agreement.

Before You Sign
The Fagin case is applicable to virtually every Michigan contract a consumer, employee or businessperson will ever face. Whether you are buying a house, starting a company, or taking a new job, life involves lots of written agreements. Here are some simple tips:

1. Read a contract entirely through before you sign it. If you don’t understand something, ask a lawyer to review it before you sign it. A lawyer should review the whole contract briefly, just to make sure that other parts of the contract don’t affect the part you are worried about.

2. If you sign a contract with a short limitation period or lawsuit cutoff, make note of it. If you have any legal problems with this relationship down the road, you may need to make a decision about suing within a few weeks of the legal problem.

3. If you have a form contract you use, for others to sign, check whether it has a limitations period or is silent on the topic.

4. If you are a small business, landlord, or general contractor, consider whether all your form contracts should be revised by your attorney to shorten the limitations period, to cut off your legal exposure to lawsuits after termination.