Appeals Court Tells Former Employees: Two Wrongs Don’t Make Them Right

03.15.2019

By: Erica M. Clifford

The Third Circuit skirted the issue as to the means by which the employer, Scherer Design Group (“SDG”) found out about the theft. In the end, the fact that an employer may have violated the common law by accessing private accounts did not prevent the Court from entering restraints. However, this decision should NOT be read to give employers unfettered access to its current and former employees’ private social media accounts. That issue, the subject of the individual defendants’ counterclaim, was not addressed by the Third Circuit or the District Court in this decision.

The Facts

Frustrated with his stalled attempts at partnership at the engineering consulting firm for whom he had worked for many years, SDG’s former Director of Engineering, Chad Schwartz, expressed his plans to start a competing firm if his negotiations with SDG did not work out. When Schwartz was asked to sign a nondisclosure agreement in November 2017, he resigned and the following month launched two competing firms, Ahead Engineering and Far Field Telecom. Schwartz recruited former co-workers and SDG employees, Daniel Hernandez, Ryan Waldron, and Kyle McGinley. The trio resigned from SDG just weeks later and began working for Schwartz at the competing firms in January 2018.

SDG soon discovered that these three employees were responsible for the “download of large amounts of company data in anticipation of resignation” and that data and other proprietary information was shared with Schwartz and other associates at Ahead Engineering and Far Field.

As part of its investigation into the unauthorized removal of its confidential company data, SDG gained access to several of Hernandez’s personal, password-protected accounts, including his Facebook messenger account. For a period of several weeks, SDG monitored Hernandez’s Facebook activity and reviewed numerous messages in which the former employees discussed the mass download of files from SDG’s database.

The District Court’s Decision

SDG filed for an injunction when it learned that the employees had surreptitiously taken SDG’s confidential company data and client files to start up a competing business. The former employees counterclaimed and alleged that their private information was unlawfully obtained. The District Court granted SDG’s request for restraints, which prevented the former employees from using SDG documents or communicating with SDG clients.

Don’t Get Your Hands Dirty

The individual defendants appealed, and argued that the District Court should not have reached the analysis of whether SDG was entitled to an injunction because the company’s secret monitoring of Hernandez’s Facebook account and instant messages was itself a legal wrong that should have prevented SDG from bringing its claims. The former employees contended that because SDG had “unclean hands,” it would not be equitable to reward the company with an injunction. The legal doctrine of unclean hands works to bar a party in a lawsuit from bringing affirmative claims if they themselves are guilty of misdeeds.

In its analysis of the employees’ argument, the Third Circuit Court of Appeals noted that while it is not expected that everyone involved “shall have led blameless lives,” the doctrine requires that the initiating party “acted fairly and without fraud or deceit as to the controversy in issue.” Put another way, the doctrine only applies when there is a direct link between the misconduct of the party seeking an injunction, and the activities sought to be enjoined.

Was there a direct connection between the company’s Facebook snooping and the former employees’ unauthorized removal and use of the company data? The Court held that there was not, and the employees could not use the unclean hands doctrine as a shield to defeat the injunction.

In so finding, the Third Circuit reasoned that (1) the employees owed a duty of loyalty to SDG “long before the Facebook monitoring occurred;” (2) SDG did not need to rely on the Facebook messages to prove that the company data was removed and transmitted to competitors; and (3) SDG’s breach of the duty of loyalty claim and any claim for invasion of privacy brought by the former employees would be entirely separate causes of action for which there would be separate remedies.

Because the allegations of wrongdoing on each side were not directly connected, the Court held that the injunction could issue and the former employees remained restrained from using unauthorized company data or contacting SDG clients while the case continued in District Court. That SDG may have subsequently broken the law with its “Big Brother-esque” tactics did not make the injunction any less warranted. Neither the District Court, nor the Third Circuit, reached a conclusion on whether the employer’s conduct violated the law.

Bottom Line

It is important to be mindful that high level or technical employees may have access to sensitive internal information. If this data is critical to your company’s success and survival, non-disclosure and non-compete agreements are a good idea. In some instances, however, it may be difficult to prevent the covert conduct of a current employee and the only available remedy may be one at law. If an employer can show that a former employee likely breached his or her duty of loyalty by transmitting confidential documents directly to competitors, or took other “affirmative steps to injure the employer’s business,” any collateral bad acts of the employer may not cancel out the wrongdoing of an employee if the two are unrelated.

Most importantly, this decision should NOT be read to give the green light to employers to snoop through their current or former employees’ private social media accounts or messaging applications. While the parties “hotly dispute” the means by which SDG gained access to Hernandez’ Facebook account – SDG claims that Hernandez never logged out of his account on his work computer and Hernandez claimed he did log out and deleted his browsing history - this dispute did not need to be resolved to determine whether or not the former employees should be enjoined from using the company data files they took without authorization from their former employer.

Though SDG may have won the battle of the injunction, the war rages on. Though not a defense to the claims that they poached SDG’s clients and took confidential company data, the former employees have filed counterclaims against SDG for invasion of privacy and tortious interference with contractual and business relations, based upon the company’s Facebook snooping. These claims, along with the employer’s claims that the former employees breached their duty of loyalty to the company and misappropriated trade secrets, remain pending in District Court.

Tags: Erica M. CliffordThird Circuit of AppealsFacebookNondisclosure AgreementNon-Compete

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