Saturday, January 9, 2010

How HR Can Protect the Company’s Assets at a Time When Unfair Competition is on the Rise.

“Every Battle Is Won Before it is Ever Fought. Think about it.” -
Gordon Gecko in Wall Street (quoting Sun Tzu)

When economic times are tough, when job security is undermined, when unemployment is on the rise, business behaves, for lack of a better term, “unfairly.” Perhaps it is because laid off employees who cannot find employment begin their own competing businesses and want to hit the ground running by soliciting their previous employer’s customers. Or, it is because businesses can not afford expensive and time consuming R&D so they “steal” it in the form of hiring away valuable and trained employees seeking the “secrets” they have access to or stored in their memories. That is to say, in these difficult economic times, corporations are experiencing unfair competition in the form of (a) unlawful pilfering and/or poaching employees, (b) misappropriation and destruction of trade secrets, and (c) fraudulent inducement of customers to leave. I know because in recent months, I have been asked to investigate these alleged activities -seeing firsthand the intense emotional backdrop that accompanies these conflicts.

Though there are laws that protect against this type of unethical, ultra competitive misconduct, the case law is riddled with the difficulty of proof and pleadings. Not to mention, the considerable expense. Consequently, in line with Katz Consulting & Associates’ mission to proactively prevent lawsuits, such as those of unfair competition or violations of the Uniform Trade Secrets Act, it is imperative that a company implement Proactive Strategies to prevent this type of behavior before it undermines a company’s financial prosperity or germinates into an ugly lawsuit. In the words of Gordon Gecko, “Every battle is won before it’s ever fought. Think about it.”

When one “thinks about it,” the realization occurs that the people within a company best positioned to prepare and prevent this unfair behavior are in human resources, working in conjunction with in-counsel. Why? First, human resources are invested in the employees. There is no one who works harder for a company to make sure they hire and train the right people for the job than the people in human resources. Often, the role of finding the “right” person, fairly compensating them, making sure they are trained, satisfied, recognized and rewarded falls on the human resource department. We all know the commonly quoted statistic that it costs a company one and half times an employee’s salary to replace him or her. But, that is more than a statistic to people in human resources, because it is often, your time, effort and expertise that go into “starting over” when a valuable employee leaves. Moreover, it’s not just the number of employees placed, but also the value they bring to the company in what they know, in what they learn on the job or how they contribute to the company. This information, knowledge or expertise, which is valuable to the company as trade secrets or confidential information, is often the result of training orchestrated or designed by human resources. Last, human resources are at the beginning, middle and end of the employee’s career with the company. When an employee is oriented they are given policies and handbooks (sometimes drafted by HR) and when many employees abruptly engage in an exodus, refusing to give notice, leave laptops, destroy files, or steal customer lists, the human resource personnel will know long before the damage shows on a spreadsheet.

The Proactive Lawsuit Prevention Strategies that HR can implement to protect employees, trade secrets and confidential information include reviewing the company Handbook to ensure it includes provisions that clearly spell out: the employee’s duty of loyalty to the employer, it’s duty to keep proprietary information confidential, categories of information which are deemed trade secrets or intellectual property and that the company is the owner of company property including tangible and intangible assets. HR should ensure that confidential information is demonstrably kept confidential with passwords restricting access, “confidential “stamps, and evidence of the cost of developing this information and keeping it from competitors.

Upon hiring the employee should be asked about contracts it had with a previous employer, and reminded not to use a previous employer’s secrets, including a customer list. Upon exit, the employee should be reminded that it is unlawful for her to solicit company customers from a confidential customer list or to take secret information with her, whether it is in the form of downloaded files, emails or memorized information. Also, upon exit, HR should be careful to document any misconduct on the behalf of the employee, including refusal to give notice, ringleading behavior, refusal to turn in equipment, destruction of files, and evidence of downloaded files to memory sticks or emails sent to offsite servers. In the event that the company will need to stop a competitor from stealing trade secrets or valuable employees, it is the “misconduct” that is key in seeking a TRO or injunctive relief when the company has to show the likelihood of success on the merits.

Last, when an employee does abruptly resign, HR should consider it a 911 emergency if there is evidence of soliciting employees, multiple simultaneous employee resignations, any missing or destroyed files or equipment, sabotaged technology and any missing confidential information or leaked trade secrets. Once this occurs, HR should immediately seek legal counsel and discuss available options to protect the company. Moreover, HR should protect what will be evidence in the event of litigation. HR should secure the employee’s computer and protect it from overwriting or backups, and document the financial cost of replacing the employee or damage to the company of the loss.

Although this is a great deal of pressure to put on the professionals in human resources and even to put on in-house counsel , the ultimate satisfaction received for preventing this costly, emotional and extensive litigation should be a job well-done - or at least, a latte. Add a muffin, you are going to battle. Think about it.