September 2009

EpsteinBeckerGreen’s 28th Annual Labor and Employment Law Client Briefing Conference, entitled “Employers Under Siege: Managing Your Workforce in Unprecedented Times,” will be held this year on Thursday, September 24th at the Millennium Broadway Hotel in New York City.

The program will include a specific workshop entitled “Trade Secrets, Technology, A Down Economy & Employees on the Move: Managing This Dangerous Mix,” which may be of particular interest to readers of this blog. The workshop will involve a panel discussion of six real life scenarios in this area of the law.

For further details on the conference and registration information, please click here.

This week the Ninth Circuit Court of Appeals issued a published opinion rejecting an employer’s argument that its former employee violated the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, when he emailed company client lists and financial data to himself for personal use. LVRC Holdings LLC v. Brekka, ___ F.3d ___, 2009 WL 2928952 (9th Cir. 2009).

The Seventh Circuit reached the opposite conclusion in International Airport Centers, LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006), reasoning that when an employee breaches his duty of loyalty to the employer, the agency relationship terminates and the employee is no longer “authorized” to access the employer’s computer within the meaning of the CFAA.

The Ninth Circuit rejected this statutory interpretation as contrary to the rule that where a statute has both criminal and noncriminal applications, courts should interpret it consistently in both contexts and resolve ambiguity in favor of lenity, avoiding interpretations that are “surprising and novel.” Because the employee in LVRC Holdings was authorized to use the company computer and to access the information, he did not violate the statute regardless of his motivation.

The opinion suggests that the result might have been different if the employer had a policy prohibiting employees from emailing company data to their personal email accounts or requiring employees to return or destroy confidential information upon the conclusion of their employment.

In Valentine Capital Asset Management, Inc. v. Agahi, 174 Cal. App. 4th 606, the California Court of Appeals, First District, recently looked at the issue of whether an associated person of a FINRA member could be compelled to arbitrate his company’s trade secret and unfair competition claims against former employees who were also associated persons of a FINRA member.  The court held that although John Valentine, the President and Founder of Valentine Capital Asset Management, Inc., was a person associated with a FINRA member, arbitration could not be compelled because his company was not a FINRA member, the new competing company created by his former employees was not a FINRA member, and the business activities in question were not activities that any of the parties took as persons associated with FINRA members. The mere fact that parties happened to have been FINRA associated persons was not sufficient to support mandatory arbitration.

Non-FINRA member companies should keep this case in mind in considering whether to enter into arbitration agreements with their employees.  It should not be assumed that an employee’s association with a FINRA member will be sufficient to compel arbitration in the event of a trade secret dispute.