A touchy legal problem with LinkedIn and restrictive employment covenants

I'll add a few points from a California law perspective:

This is one area of trade secrets law that often catches employees by surprise. Most employees who have substantial contact with customers (e.g., those doing sales) merely assume that the information relating to those customers belongs to them. In the past, they used to keep such information in a day book, today perhaps on some electronic device. As such employees interact with the customer representatives, they often develop close relationships with them, sometimes becoming personal friends, etc. From this, they come to assume that this network of contacts is a personal asset that they can take with them wherever they go for future business purposes.

The law sees it differently, however, even in California where restrictive covenants are normally highly disfavored. The legal theory is generally as follows: as long as an employer pays the salary of the person who is interacting with its customers, the information gleaned from those contacts - to the extent it is not otherwise publicly available in convenient form - becomes confidential, proprietary information belonging to the employer. This can sometimes include the identity of the customer itself, though not when it is widely known in the industry who such customers are. Even in such cases, however, the particulars associated with those accounts - i.e., the names and contact information of actual customer representatives, information relating to a customer's buying needs or to pricing or to any similar item that is or may be valuable for an employer to know concerning the relevant market and which is not publicly available - do tend to be treated as employer-owned confidential information and any former employee who attempts to use such information to the competitive disadvantage of the former employer can potentially be sued for misappropriation of trade secrets and unfair competition. The theory is that the employer makes a significant investment in assembling such information by paying the salaries of its sales team and the like and no employee should simply be able to rip it off for nothing and use it competitively against the employer who paid to assemble it. This is where many employees miss the point: they see their contacts as belonging to them ("these are my customers") when in reality they may be quite restricted in what they can do with such information as long as they obtained it while being paid a salary by some employer.

Of course, in traditional sales and similar areas, the lines tended to blur in economic reality. For example, an employer hires an experienced sales person in x industry. The very purpose of doing so is to gain the benefit of that persons substantial contacts. When that sales person is hired, the customer information he brings with him does not become the property of the employer simply because he happens to have gotten that job - indeed, all such information continues to belong to him and is merely being made available for the benefit of his employer during the term of the employment. On the other hand, if that very person then works for a decade in that position and thereby obtains a much expanded set of customer information because of things done on that job, that expanded information set can be treated as proprietary information belonging to the employer. Thus, in theory at least, once that employee leaves that job, he can freely use all his pre-employment customer information but may well be restricted in using the information he learned while employed on that particular job.

One can posit all sorts of variations on this arrangement by which complications are injected (e.g., if someone is an independent sales agent and not an employee, who owns the information? or if an employer makes the information company-wide on a database without placing special restrictions on who can use and for what purpose, is it still to be regarded as "confidential"?). The lines can easily blur, making it hard for an employer to claim that certain information is "proprietary" and belongs to the employer.

In our modern, inter-connected world, LinkedIn and similar services have created a real problem for employers seeking to enforce these traditional restrictions on an ex-employee's use of customer contact information, in some cases making it virtually impossible for an employer to stop such contacts.

This piece discusses some of the legal attempts being made by employers to block use of LinkedIn, etc. as a way of making contacts with customer representatives of the former employer. Basically, such services have thrown this area of law into chaos and this is the employers' attempts to restore control consistent with the past practices of a much less inter-connected world, i.e., to use contract language as a way of legally reasserting control over a situation that was practically out of control.

In states like California, this is likely a losing fight but perhaps not so much in other states where restrictive covenants are more strongly upheld. It will be interesting to see how this develops over time.

Personally, yeah, if they wanted to continue paying me for that period, I'd feel quite differently; but I've never been offered something like that.

(now, I work as a computer janitor; Unix SysAdmin, DBA, etc... and occasionally some programming work, not sales, so non-competes are pretty rare, actually, and usually a sign that the person asking you for the non-compete is a scumbag.)