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Non-Disclosure Agreement Collateral Concerns

As with non-compete agreements, employers are increasingly relying on non-disclosure agreements (“NDAs”) to protect their valuable, confidential information. Because of the importance of the underlying issues at stake in attempting to enforce NDAs (e.g., trade secrets and other competitively valuable information), it is important for employers to evaluate enforceability up front and appropriately invest time and money in proactively considering collateral issues that often arise in the NDA context. Some of those collateral issues include the following:

  • Definition of confidential information. Rather than relying exclusively on general or nebulous terminology in the NDA, employers should, to the extent possible, attempt to set forth the type and/or categories of information subject to the NDA with some measure of particularity. Obviously it is best not to include what purports to be a comprehensive list, but some effort toward specificity in the type of information subject to the NDA will go a long way towards improving the chances of enforceability.
  • Scope of confidential information. Employers should craft their NDAs to only encompass legitimately confidential or trade secret information. Overly broad NDAs that expansively encompass public or non-confidential information are less likely to be judicially enforced should litigation arise.
  • Preserve confidentiality of the information. In addition to defining the information as confidential in the NDA, the employer must separately take steps to safeguard the confidentiality of that information. If the employer does not, it becomes increasingly likely that a court may conclude that the information is not really confidential or competitively sensitive and is not entitled to protection under the NDA.
  • Protect trade secrets. Oftentimes, the definition of “confidential information” subject to a valid, enforceable NDA will differ in some respects from the scope of “trade secrets” protected by state and/or federal law. Employers should consider those differences, if any, in drafting their NDAs and in considering whether additional agreements are necessary to ensure legal protection of their trade secrets.
  • Varying levels of protection may be necessary. Depending on the industry and type of information at issue, the NDA may need to be more specifically tailored to account for heightened levels of protection required for certain types of confidential information (g., health records, consumer date, personal identifying information). In such cases, the NDA should address the heightened protection and include contingencies for return and/or destruction of all data at the conclusion of employment, as well as data security and breach notification.
  • Social media implications. Employers and employees alike should be aware of the impact of NDAs on social media accounts. In one recent case, for example, a former employee of a global recruiting and staffing firm was required to remove thousands of her LinkedIn contacts based on her former employer’s argument that those contacts actually belonged to the employer and not to the employee individually.

In preparing their NDAs, employers should consider these issues to ensure that the resulting agreement adequately addresses their concerns and does so in a manner most likely to be enforceable should litigation arise.

 

Access to Client Lists May Warrant Litigation Over Noncompete and Nonsolicitation Agreements

With increasing job mobility, lower profit margins and heightened competition, and the ease of access to confidential information, more companies across various industries require their employees to execute non-compete and/or non-solicitation agreements. Employees may still retain the ability to move jobs but they may be restricted in their performance of those new positions, particularly when moving to a competitor in the industry.

On April 13, 2015, Citibank initiated litigation in New York to prevent a former vice president of its private banking division, Citi Private Bank, from using its client information to solicit business in his new position with one of its direct competitors. Citibank argues in its lawsuit that the former vice president, Mourra, is improperly utilizing confidential information, namely client lists and contact information, to reach former clients and solicit them to move their business to his new company. In this case, the conduct allegedly runs afoul of a one-year non-solicitation clause and a confidentiality provision in his employment agreement with Citibank. As is typical of most litigation over non-compete and non-solicitation agreements, Citibank initially seeks an injunction preventing Mourra from communicating with his former clients and using Citibank’s confidential information.

As part of its effort to prevent Mourra from soliciting former clients, Citibank makes a point of alleging that he did not originate any of the former clients himself. Instead, as Citibank claims, the 49 families with about $5.7 billion in assets under management either had existing relationships with Citibank or were originated by other employees and serviced by Mourra. The point is, none of the clients were actually his individual clients and the only way he had any contact with them was due to his employment with Citibank. As such, the argument goes, the information was confidential to Citibank, was only available to Mourra because of his employment with Citibank, and could not be properly used by Mourra in his new position with a direct competitor.

Employers and employees alike must remain sensitive to non-compete and non-solicitation issues, especially in an era of increasing job mobility and heightened competition for often limited or finite business resources. And customer or client lists may be of sufficient value – in this case $5.7 billion in assets – to warrant litigation.

Citibank NA v. Mourra, Case No. 651215/2015 (Sup. Ct. NY)