Trade Secrets and Noncompete Blog : Non-Compete Lawyer & Attorney : Epstein Becker Green Law Firm : Trade Secrets & Confidentiality Agreements

On June 17, 2010, in Ontario v. Quon, the United States Supreme Court decided that the City of Ontario, California could review the non-work-related text messages to and from a City police officer on a City-issued electronic pager. Because the opinion involved a governmental employer and was largely grounded in a 4th Amendment analysis, many private employers have paid Quon little attention. But that would be a mistake, especially for those facing trade secret and non-competition matters. Quickly accessing and collecting so-called “private communications” can play a vital role in amassing the evidence needed to support a restraining order or preliminary injunction. Despite the fact that much of the analysis in Quon would be irrelevant in the private employment context, the Supreme Court expressly held that the review of the officer’s personal text messages on the employer-issued pager “would be ‘regarded as reasonable and normal in the private-employer context.’” (Slip op. at 16). Consequently, knowing what was done and how it was done in Quon may provide even private employers with a roadmap for approaching such issues, and then provide from the highest court in the land legal support for the reasonableness of the employer’s conduct.

Quon’s facts, and the assumptions that the Supreme Court made about them, are worth a brief review. First, the Court noted that the City “reserve[d] the right to monitor and log all network activity including e-mail and Internet use, with or without notice. Users should have no expectation of privacy or confidentiality when using these resources,” but that the policy “did not apply, on its face, to text messaging.” Slip op. at 2. Further, “[a]lthough the Computer Policy did not cover text messages by its explicit terms, the City made clear to employees, including Quon,” through statements at various meetings and in a written memorandum that “[text] messages sent on the pagers ‘are considered e-mail messages. This means that [text] messages would fall under the City’s policy as public information and [would be] eligible for auditing.’” Id. at 3 (bracketed language in original). On the other hand, Quon argued that he could reasonably expect that his text messages would remain private based on the City’s past practice. Each pager issued to officers was allotted a limited number of characters sent or received each month. Id. at 2. According to Quon, the City told him that an audit of his text messages would be unnecessary if he paid the excess charges for any use that exceeded the monthly limit. Id. at 9. Because he paid for those excess charges, id. at 3, Quon argued that he had a reasonable expectation that the City would not review the contents of his text messages.

Rather than resolve this dispute, the Supreme Court assumed for the purpose of its analysis that “Quon had a reasonable expectation of privacy in the text messages sent on the pager provided to him by the City,” slip op. at 12, yet nonetheless found that the City’s review of the personal text messages was appropriate and reasonable for the governmental employer acting without a warrant. Slip op. at 12-13. Important factors supporting the Court’s finding of reasonableness were (i) the City did not search any text-messages sent during off-duty hours; and (ii) the City searched only a sample – i.e., only two months of messages sent by Quon rather than all of the months during which he exceeded his monthly character allotment. The Court concluded that, despite any expectation of privacy, such a search was reasonable for a government employer and would have been “‘regarded as reasonable and normal in the private-employer context.’” (Slip op. at 16).

Central to that conclusion was the concept that the recognition of an employee’s expectation of privacy was not tantamount to conceding that such privacy would remain wholly inviolate:

Even if he could assume some level of privacy would inhere in his messages, it would not have been reasonable for Quon to conclude that his messages were in all circumstances immune from scrutiny. Quon was told that his messages were subject to auditing. As a law enforcement officer, he would or should have known that his actions were likely to come under legal scrutiny, and that this might entail an analysis of his on-the-job communications. Under the circumstances, a reasonable employee would be aware that sound management principles might require the audit of messages to determine whether the pager was being appropriately used. …From [the Ontario Police Department]’s perspective, the fact that Quon likely had only a limited privacy expectation, with boundaries that we need not here explore, lessened the risk that the review would intrude on highly private details of Quon’s life. OPD’s audit of messages on Quon’s employer-provided pager was not nearly as intrusive as a search of his personal e-mail account or pager, or a wiretap on his home phone line, would have been. That the search did reveal intimate details of Quon’s life does not make it unreasonable, for under the circumstances a reasonable employer would not expect that such a review would intrude on such matters. The search was permissible in its scope. (slip op. at 14).

The Court expressly noted that, given the employee’s limited privacy expectation (based on the City’s electronic communication policy, the fact he was told that his text messages might be audited and the fact that his position as a police officer might require an analysis of his on-the-job communications) the government employer would not reasonably to expect that an employee would place highly private details of his life into messages on his employer’s physical device. (slip op. at 14). When the Court later expressly concludes that such a “search would be ‘regarded as reasonable and normal in the private-employer context,’” the Supreme Court can be said to be validating for a private employer that same right reasonably to expect that an employee would avoid placing highly private details of his life into messages on his employer’s physical device when the employee had been advised his employer might audit such communications.

In the wake of decisions like Stengart v. Loving Care [see previous blog post here], where the New Jersey Supreme Court dictated much less latitude for employers, even the brief mentions in Quon that reference private employers are welcome ones.

There are some practical tips for employer communication policies. Such policies should be all inclusive – covering cell phones, e-mail, text messaging, etc. The fact that the written policy in this case did not expressly cover text messages caused some confusion. Also, although the Supreme Court tried to state that it was not opining as to how advances in communication technology may impact an employee’s expectation of privacy, it went on to make several such statement (much to the dismay of Justice Scalia). For example, the Court observed that, on the one hand, the pervasive use of cell phones and text message means that some people may consider them to be “necessary instruments for self-expression, even self-identification” which would strengthen the case for an expectation of privacy; but the Court also noted that “the ubiquity of those devices has made them generally affordable, so one could counter that employees who need cell phones or similar devices for personal matters can purchase and pay for their own.” (slip op. at 11). This later point also provides some practical guidance—perhaps employers should add to their electronic communications policy a statement along the lines of the following: An employee who desires to send or receive personal communications unreviewable under this policy should purchase and use his/her own cell phone/text messaging device and service plan.
 

While many employers worry that some court decisions will add "insult to injury," New Jersey employers must now be aware of Stengart v. Loving Care Agency Inc., et al., --- A.2d ----, ---N.J. -- (N.J. 2010), decided March 30, 2010, which presages adding "injury to injury." That is because it first injures employers' interests by stating that an employer cannot write an enforceable policy that “banned all personal computer use and provided unambiguous notice that an employer could retrieve and read” all emails that an employer wrote through a personal email account using an employer’s computer and that an employee’s communications with personal counsel concerning matters adverse to the company may occur during work time using the employer's resources. And if that were not injury enough to the employer's interests, in having employees actually work on company business while at the office using the company's resources, the Stengart Court then goes on to add another possible injury—on remand, the trial court should consider disqualifying the company's counsel for not immediately returning to the departed employee (or her counsel) all copies of such communications. The Stengart decision demands that employers, especially in New Jersey, not only revisit their written policies, but also that they consider how such policies are actually being applied and enforced. Decisions like Stengart can also directly impact on steps that have become part of best practices responses in trade secret and restrictive covenant cases involving departing employees.

Background

Plaintiff Marine Stengart was the Executive Director of Loving Care, Inc., a home care services agency, who resigned and then sued Loving Care for constructive discharge under the New Jersey Law Against Discrimination. Stengart was issued a company laptop computer. Despite some factual discrepancies between the parties as to the content and dissemination of certain policies, the Court also assumed for its analysis that the company had a well-publicized electronic communications policy that made all aware that the employer's computer and system (including those allowing for internet access) were all company property, to be used for company business, and that the company believed that there was no reasonable expectation of privacy in any communications that an employee had through such equipment or system because the communications were, as announced in the policy, subject to monitoring, were considered the property of the company, and were embedded within the company's physical property. Stengart, nonetheless, used her company computer to communicate with her personal counsel through her Yahoo account. Such communications were discovered by her former employer on that computer after her termination. Loving Care's counsel did not immediately disclose the existence of such communications to Stengart or her counsel, and instead referenced and included those of relevance to a response to a later discovery request.

The Court's Analysis

The Court’s analysis is driven by two basic factors, one case specific, one more general, on the issue of whether a privilege ever existed or was waived.

Of specific concern to the Court was Loving Care's written policy, which clearly stated that E-mail and voice mail messages, internet use and communication and computer files are considered part of the company's business and client records, that "such communications are not to be considered private or personal to any individual employee, that the company reserved the right to review, audit, intercept, access and disclose “all matters on the company’s media systems and services at any time." But the policy also stated that "occasional personal use is permitted." The Court, assuming the policy was in effect, and despite language in the policy that specifically applied to "internet use and communication" in addition to e-mail, found that an objective reader might not conclude that the policy applied to using a work computer to access a personal, password-protected Yahoo account. Moreover, the Court held that the company's reasonable statement that "occasional personal use" of the company email would be tolerated somehow further frustrated the company's effort to thwart the creation of any reasonable expectation of privacy.

But, more generally, the Stengart Court found that the interests protected by the attorney-client privilege outweighed employers' interests in enforcing electronic communications policies. In doing so, the Court seemed to ignore the fact that privileged communications require an expectation of confidentiality, and none should have arisen on the facts of this case. The Court's analysis suggests strongly the policy's provision allowing for occasional "personal" use somehow created an expectation of privacy, ignoring the distinction between "private" and "personal." In Stengart, the terms were used interchangeably, even though the words do not necessarily carry the same connotation.

The holdings of the Stengart Court go beyond the earlier Appellate Division decision in the case, which had only implied that a policy cannot be written that would have led the Court to have found any claim of privilege inert or waived. Indeed, the Supreme Court expressly stated that, and also noted that “a zero-tolerance policy [on personal use of computers]” is “unworkable and unwelcome in today’s dynamic and mobile workforce…” That reading is certainly furthered by the Court's remand to consider whether the employer's counsel should be disqualified under RPC 4.4(b) for having kept and reviewed the communications.

Takeaways and Next Steps

The decision leaves employers with several questions that we will try to help you answer, and they are questions that can have particular impact in the area of trade secret and restrictive covenant litigation:

1. Do you, as an employer, want a policy that reaches otherwise privileged or private communications? You do. Though the Stengart Court says that no legitimate business interest is furthered by transforming all private communications into company property, the Court misses the important point that many legitimate business interests are furthered by stemming private communications during work, the most basic being the employer's interest in having work being done at work. Indeed, the very examples earlier used by the Appellate Division as to what is accessible instantly "with the touch of a keyboard or a click of a mouse" (e.g., medical records, bank accounts, phone records, and tax returns) illustrate full well that these are the very sort of personal items that an employer has a great interest in keeping from being disclosed in or to the workplace. In warning employees that what is personal and private will be neither if brought into the workplace, employers are protecting themselves and their employees, and also assuring that they are not paying employees to come to work to work on personal medical, financial or other matters between lunch breaks and coffee breaks.
 

2. Does Stengart allow for the creation of such a policy? It may. But drafting and then upholding that policy against legal challenge will take great care. We know this because a close reading of Stengart leaves the careful room to operate—as the Supreme Court says, “Our conclusion…does not mean that employers cannot monitor or regulate the use of workplace computers.” For instance, Stengart says that a policy requiring that one work at work and not spend valuable time on personal communications is appropriate, “[b]ut employers have no need or basis to read the specific contents of personal, privileged, attorney-client communications in order to enforce corporate policy." Of course, overlooked by the Court is that one cannot define the communicative activity as one outside the employer's business interests without knowing the content that would show that. Thus, the Stengart Court's distinction between communicative conduct and communicative content probably fails analytically, which is implicitly acknowledged by the Court's noting that an employer may have an interest in certain types of personal content as reflected in previously decided cases. Nevertheless, one can enforce such a policy by blocking access to Internet-based email accounts from employee computers, or through other mechanisms and policies that focus on the time devoted to such communications as opposed to their content.

3. With or without a new policy, what do you do if you find attorney-client communications on a departed employee's computer? The first thing that one must do is collect, segregate and preserve such communications. Once that has been done, whether by one's internal IT staff or outside IT consultants, the existence of such documents should be made known to outside counsel. Then things get a little more complicated. If the employer is already in litigation, it would appear that Stengart compels one to either then turn over all copies to the plaintiff and his/her counsel or present them to the court for in camera review as to whether or not they are privileged or if privilege has been waived. Because fully reviewing the documents at issue after becoming aware that they are arguably privileged raises the possibility of later disqualification under RPC 4.4(b), an employer may even consider retaining special counsel separate from regular employment counsel to handle the application to the court, and to advise the client concerning the issues that have arisen without running the risk of having primary defense counsel disqualified from the matter. An even more sensitive, nuanced analysis will be required if that matter is not yet in litigation, and there is no already designated third party decision maker available. At that point, the employer, along with employment counsel and possibly special counsel, must carefully weigh a number of practical, legal, ethical and business factors before determining how to approach the relevant issues.

Having both employment counsel and possibly special counsel familiar with those issues and the new landscape defined by Stengart will be essential to avoiding damaging one’s position concerning claims that the departed employees are expected to file. This is especially true as it relates to departing employees in the trade secret or restrictive covenant context, where one often seeks to document through forensic computer analysis what communications occurred in preparation for a departure and what confidential information may have been transmitted. The last thing one wants when operating with a need for speed is some ancillary disqualification issue to arise for one’s outside counsel. That is why segmenting roles and responsibilities is important, and it may be that special counsel can turn the tables on a departing employee and his/her counsel by demonstrating that the pre-departure communications were actually advice as to how and under what circumstances information could be taken. This would have the potential to render the communications unprivileged ones in furtherance of a “crime or fraud,” which exception has been construed in New Jersey and elsewhere to apply to civil wrongs of a wide variety, and could possibly lead to the ex-employee’s counsel becoming a witness in the matter, which could have its own potentially disqualifying or limiting implications.