When an employee leaves a firm, can they take their client list with them to their new job?
That question is at the heart of a debate in Fortune magazine, and as one would imagine, the answer here is slightly more complex than a simple yes or no.
According to Michael Greco, a legal partner at Fisher & Phillips, this question tends to come up a lot whenever the economy is either dramatically improving or declining. The labor law firm Greco works for predominantly deals with proprietary knowledge cases, so he is no stranger to this particular issue.
In recessionary times, companies are [especially] willing to take extra steps to protect their business, Greco said.
Although many peoples first reaction to this issue depends on the terms of the employees departure (i.e. retired, fired, or resigned), or whether or not any sort of non-compete agreement was signed, Greco would be quick to note that companies have a not-so-secret weapon at their disposal: the Uniform Trade Secrets Act.
Originally drafted in 1985 at the National Conference of Commissioners on Uniform State laws, the Uniform Trade Secrets Act is currently enacted into law by all 50 states. It defines a trade secret as any piece valuable information that is not known to the public that an organization has taken reasonable steps to maintain as private.
So, why is this important?
Last May, the Ohio State Supreme Court ruled in the case Al Minor & Assoc. Inc. v. Martin that client lists are considered trade secrets. Therefore, whenever an employee leaves and takes one or more clients along, he or she is essentially susceptible to legal action.
I do a lot of work in the securities industry, and those firms definitely consider their client lists to be propriety trade secrets, Greco said.
Even in instances where the firm posts the names of big institutional clients on its website, other information about those clients when their contracts expire, what rate they are paid, who their contact person is, and so on is still considered highly confidential, he added.
On a slightly more positive note, not all hope is lost for those who wish to work with former clients in the future. For example, consider the scenario where a former client initiates the pursuit for and or the continuation of a business relationship.
If your clients approached you, not vice versa, some judges would say you cant be expected to turn away business, but in all cases its up to the individual judge to exercise what is called equitable discretion, Greco said.
Overall, Greco suggests that anyone who changes jobs should read the paperwork very carefully and beware that in tougher economic times, firms may gravitate more towards the trade secrets act than they might have in years past.