Saturday, 31 March 2012 21:01

How to avoid business litigation

There is a time and a place to fight for an important principle. Yet, business litigation is rarely about principle. After all, you are in business to make a profit. Often this is something business owners need to remind themselves of.

Monte Mann, partner at Novack and Macey LLP, urges owners to think long and hard about the costs and distractions of business litigation, which can be severe.

“As a business litigator who makes a living in the courtroom, it may be surprising to learn that I also spend a great deal of time in the boardroom — working with clients on ways to avoid litigation well before it arises,” he says.

Smart Business spoke to Mann about the six items that come up most frequently when he is working with clients on avoiding litigation.

What are some common ways that litigation arises for a business?

Many companies find themselves in litigation with their own minority shareholders. Yet, surprisingly few shareholder agreements have ‘buy-sell’ provisions, which provide the company with the right to buy out a minority shareholder based on a stipulated price formula.

Disgruntled minority shareholders are a big source of litigation, and these buy-sell provisions can be used to remove the complaining shareholder and, consequently, eliminate the likelihood of litigation.

Partnership agreements may also include these useful provisions. Business owners should check their shareholder or partnership agreements to ensure that they have  these buy-sell provisions. If their agreements lack provisions, they should make efforts to include them as soon as possible. It’s very difficult, if not impossible, to negotiate later when something goes wrong.

How can owners avoid employee-related litigation?

Your employees are another big source of potential litigation. You must  have an employee handbook that sets forth policies on issues central to the employer-employee relationship, such as confidentiality, discrimination and harassment, employee absences, sick leave, vacation time, and other employer rights and employee benefits.

Policies should be simple and clear, and all managers should be intimately familiar with them. Moreover, these policies must be applied consistently. While it will not totally eliminate them, operating your business in a way that is consistent with your handbook will greatly reduce the likelihood of employee-initiated lawsuits.

What other practices and policies should be reviewed to help companies avoid litigation?

Terms and conditions of buying and selling should be an area of focus. Your purchase and sales order forms should be reviewed and revised by counsel periodically to ensure that your terms and conditions give you critical advantages if a dispute arises with a customer. At a minimum, the terms and conditions that you want to review include terms on payment, risk of loss and warranties.

In addition, requiring that the other side litigate all disputes in your jurisdiction (a ‘choice of forum’ provision) will likely reduce lawsuits against your company. Even better, require that all disputes be resolved in an expedited arbitration in your jurisdiction, with strict limits on pre-trial discovery. This should reduce: a) the number of claims against you; b) the costs of each claim; and c) the amount of time each claim will take until resolution.

Finally, if you have to pursue amounts owed to you, make sure that your forms allow you to recover your costs of collection, including, but not limited to, attorneys’ fees.

How else can a business ensure that it is protected?

Pay close attention to protecting intellectual property. You do not get the right to do business under a particular name just by incorporating or filing a name registration in your state. The only way to properly select and protect a name is through a trademark search and registration with the U.S. Patent and Trademark Office. This is not for the uninitiated. An outside search and legal review may cost less than $1,000.

Your company’s name is not likely its only valuable intellectual property. Patents protect those who invent or discover new processes, machines, manufacturing methods, or any new or useful improvement thereof. Trademarks protect words, names, symbols, sounds and even colors that distinguish goods and services from those manufactured or sold by others. Copyrights protect original works of authorship. Patents and trademarks are registered with the U.S. Patent and Trademark Office. Copyrights are registered with the U.S. Copyright Office. Consider the intellectual property your business uses and seek to register it as early as possible to avoid problems.

When should a business owner involve a litigator?

Don’t wait until you are sued, or you want to sue, to involve a business litigator. The time to do so is when you see trouble out on the distant horizon. An experienced business litigator can help you shape the dispute so that it is consistent with your contract terms and conditions — as well as the law — so that you are in a better position to prevail in court. After all, when a dispute arises, one of the best ways to avoid litigation is to convince the other side that you will likely prevail in court.

Monte Mann is a partner at Novack and Macey LLP. He is a business litigator who represents closely held corporations and partnerships in business disputes. Reach him at mmann@novackmacey.com or (312) 419-6900.

Insights Legal Affairs is brought to you by Novack and Macey LLP

Published in Chicago

Many companies are expanding their marketing presence in social media outlets. However, not all companies are taking appropriate steps to ensure that they “own” their social media accounts when the employees who create them leave, says Richard Douglass, a partner with Novack and Macey LLP.

“It is important for companies that use Twitter or other social media as part of their marketing campaign to clearly define what rights, if any, the employees who tweet on their behalf have to the social media accounts and content,” says Douglass.

Smart Business spoke with Douglass about who owns a social media account and how to protect your business when social media employees depart.

What ownership rights are there in a social media account?

A social media account has two parts. First is the account itself. This includes login information and the people who have signed up to receive messages posted to the account. It is this aspect of an account that typically provides most of the value to the owner. For example, a Twitter account with 10,000 followers should be worth more than an account with 1,000 followers because 10 times as many people are reading the messages.

Second is content, messages posted to the account by an employee to share with the public. Rights to the content are generally governed by the same copyright principles that govern other written material produced by an employee. A question surfacing now regarding corporate Twitter accounts is not who owns the content but who has the right to control the account.

Have the courts decided who owns that right?

Not yet. The issue of who controls user rights to a Twitter account has not been widely litigated, but two decisions rendered last fall provide guidance.

A U.S. District Court in New York issued a preliminary injunction requiring a former employee to turn over to her employer all passwords and other login information for the company’s social media accounts that she used during her employment. The court relied on a fairly generic copyright work product agreement to support its decision. And, probably because of the agreement, the employee did not dispute that the employer owned the accounts.

Because ownership was not disputed, the court did not have to engage in an in-depth analysis of whether the user rights to the accounts and the subscribers were covered by the work product agreement. This decision signaled that courts will likely be willing to enforce agreements requiring former employees to turn over the keys to social media accounts when they leave.

On the other hand, a U.S. District Court in California was faced with a dispute over the ownership of a Twitter account, but it appears the employer and employee did not have any agreements concerning ownership of the account or the content. As such, the employer was forced to rely on other legal theories to assert control rights.

While employed by the plaintiff, the employee used the account to promote the plaintiff’s website to increase traffic and increase advertising revenue. When he left, the Twitter account was alleged to have 17,000 followers. The employer claims it asked the employee to turn over the account after he left, but he refused. Instead, he changed the name on the account to remove reference to his former employer and now uses the account to post messages on behalf of his new employer. As of February, the account had more than 24,000 followers.

Without a written agreement as to ownership and control over the account, the employer is asserting claims based on other legal theories. First, it claims the list of account followers is a trade secret. This argument seems doomed to fail given that follower lists are available on Twitter’s website. The employer also claims the account password is a trade secret. That, too, seems to be misguided, as the employer does not gain value from the password itself and it could be changed at any time by the ex-employee.

Second, the employer claims the ex-employee is interfering with its business relationships by not turning over the account. This claim, however, does not seem to answer the relevant question — who owns the user rights to post messages on the account. These claims start from the assumption that user rights belong to the employer and assert that the ex-employee wrongfully refused to turn them over. Yet, if the ex-employee owns those rights, then he did nothing wrong. The employer’s claims have survived motions to dismiss, but the litigation is likely far from over.

How can companies protect their rights to social media accounts after an employee leaves?

Express agreements defining who owns company social media accounts. The New York case shows that courts likely will enforce agreements over the rights to access, just as they enforce agreements governing ownership of the intellectual property rights to the content.

In essence, the collection of people subscribed to the account is a direct byproduct of the content, so one could argue that an agreement regarding content also covers the account. Nevertheless, the account itself is a sufficiently unique asset that it should be separately addressed.

The easiest solution is to require employees using social media on behalf of their employer to sign an agreement granting all user rights to the accounts to the employer, specifying that it will retain such rights after the employee leaves. The agreement should identify the accounts for which the employee is responsible and state that, when employees leave, they will turn over account passwords and relinquish all rights to access subscribers.

Taking this precaution at the start of an employment relationship should avoid disputes later. And, if disputes do arise, they put the employer in a strong position in any litigation.

Richard Douglass is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or rdouglass@novackmacey.com.

Published in Chicago

In this country, unlike many others, litigants — win or lose — generally pay the attorneys’ fees they incurred in litigation. This rule, known as the “American Rule,” can be frustrating for the winner. After all, if you have won the case, why shouldn’t the loser pay? Nevertheless, the American Rule is the default rule in our legal system.

As with most rules, there are exceptions.  Some contracts, statutes or codes of civil procedure trump the American Rule and provide that the loser is obligated to pay the winner’s reasonable legal fees. Given the American Rule’s sting, lawyers keep a keen eye out for such exceptions, hoping to recover fees for their clients.

Most lawyers know that, when the exceptions to the American Rule apply, courts will allow businesses to recover reasonable fees paid to outside counsel. But some do not know that many courts will allow recovery for a client’s in-house counsel as well, says Christopher Moore, a partner at Novack and Macey LLP.

Smart Business spoke with Moore about how to maximize chances for the recovery of in-house legal fees, the importance of detailed time records and how such fees are calculated.

Can a business recover for the legal services rendered by an in-house lawyer?

Most courts say yes. That might seem counterintuitive because an in-house lawyer typically is paid a salary, which would have been incurred whether he or she was involved in a particular litigation or not. Thus, the money paid to an in-house lawyer can be viewed as ‘overhead,’ rather than costs incurred as a result of litigation. And, while some courts have denied fee recovery for in-house counsel on that basis, that is, because a business incurs no added attorneys’ fees when in-house counsel assists it in litigation, many courts do not. As the Seventh Circuit has recognized, ‘every hour spent on a case by an in-house lawyer is an hour that he or she could have spent for the business on some other matter.’

What can a business do to maximize its chances of recovering for such services?

Just because a court may allow a business to recover for the services provided by its in-house lawyer does not mean that all — or even any — fees attributable to his or her work are recoverable. For example, litigants seeking legal fees have to show that those fees were reasonable, and this principle applies with equal force to businesses seeking to recover fees for their in-house attorney.

Reasonableness aside, businesses face an additional hurdle when they try to recover fees for work done by their in-house lawyer: They have to show that the in-house lawyer ‘actively participated’ in, or ‘substantially contributed’ legal services to, the litigation. Fees are not generally recoverable if the in-house lawyer was acting merely as a ‘liaison’ between the business and outside counsel.

What this means in practice is not always clear. However, a business’s chance to recover is maximized when that lawyer performs the type of work that is often associated with litigating a case. Examples include preparing discovery documents, outlining deposition questions, examining witnesses, or participating in tactical trial decisions. Obviously, it helps if in-house counsel files an appearance, presents argument, or appears in court at trial.

Conversely, fees will not be allowed when in-house counsel acts more like a client by, for example, merely keeping the business up-to-date on the litigation, transmitting progress reports to the business, or communicating the business’s views on litigation strategy to outside counsel.

What kind of time records should be kept?

Because fee recovery depends on demonstrating that the fees were reasonable and that in-house counsel was actively participating in a case rather than acting as a liaison, it is vital that in-house counsel keep detailed records of their work. At a minimum, those records should not only show the time devoted to each litigation task but also describe specifically how the work performed was work for which courts allow a business to recover. Courts have denied recovery when time records lacked such detail and thus failed to demonstrate that in-house counsel was substantially contributing to the litigation, rather than acting as a client liaison.

How are in-house fees calculated?

There are various ways that courts could measure recoverable fees for in-house counsel, but two principal approaches seem to have emerged.

In one approach, courts accept the view that the work performed by a salaried, in-house attorney is recoverable, but they are mindful that such work can be viewed as part of a business’s overhead. As such, a business seeking to recover fees needs to show these courts how much of its overhead can be allocated to the litigation at hand. The calculations needed to make such a showing can be complex. Still, courts favoring this approach, or something similar, are concerned that a different approach could permit litigants to recover more than the costs actually attributable with in-house counsel’s work, and thereby result in a windfall to the victorious litigant.

In another approach, courts have awarded fees for in-house litigation work based on a ‘market rate.’ Essentially, this is what non-in-house lawyers in the same market would have charged the business for the same services. Courts favoring this approach see at least one advantage: It avoids the need to make the complex inquiries and calculations that the first approach and similar methods require. Moreover, courts favoring this approach believe that the market-rate approach likely produces a fee calculation roughly equivalent to that given by the first-described approach. This is because, among other things, time devoted by in-house counsel to a particular litigation is time he or she could have spent on some other task.

In the end, courts favoring the market-rate approach reason that such time is no less valuable than what a business would have to pay outside counsel to do the neglected work.

Christopher Moore is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or CMoore@novackmacey.com.

Published in Chicago

The cornerstone rule of discovery in civil litigation is that parties to a lawsuit must preserve, gather and produce relevant documents.

However, “it is becoming increasingly difficult and expensive to carry out this basic obligation, given the staggeringly high volume and informal nature of our electronic communications in the workplace,” says John Shonkwiler, a partner at Novack and Macey LLP. “Discovery obligations are not going away, and so it is important for employers to improve e-mailing habits by teaching discretion and organization.”

Smart Business spoke with Shonkwiler about the importance of forming better e-mailing habits and how to get started organizing e-mail.

What are some ways to improve e-mailing habits?

Stop ‘reflex’ e-mailing. Too often, we give in to the almost reflexive urge to respond to e-mail immediately, as if we were talking to someone. This is the texting culture invading the workplace, which is an environment that demands better judgment and discretion.

It is not inconsiderate or unprofessional to deliberate before responding to e-mail.  Sometimes just waiting 10 to 15 minutes can make a big difference. Except in those rare instances where an urgent response is called for and cannot be made by phone, people should not fire off immediate responses. Stop and think about what you’re sending and whether you need to send an e-mail at all.

Why is ‘reflex’ e-mailing problematic from a litigator’s perspective?

We create so much e-mail. And as the volume increases, so does the cost of electronic discovery. Reflex e-mailing exacerbates the problem by creating more e-mail unnecessarily. Hasty e-mail responses so often can be inconsequential. For example, a response of, ‘I’ll check on this and get back to you,’ is unnecessary unless you know you are not going to be able to respond to an e-mail within the time required or expected by the person who sent it. And you don’t have to be a physicist to understand the laws of ‘e-gravity’: When you send more e-mail, you receive more e-mail. So, carefully consider whether each e-mail you compose has a purpose.

Also, e-mails that are carelessly or informally prepared are more likely to reflect poor judgment, convey inaccurate information, or contain sarcastic or flippant remarks on serious topics that don’t translate well on paper. These things make for bad documents in litigation. You want to think of every e-mail like a potential trial exhibit. Ask yourself, if you were on the witness stand, would you like to be confronted with this? Almost invariably, the worst documents that we see as lawyers as we’re gathering documents in discovery — the ‘smoking guns’ — are careless e-mails.

How should employers teach employees about using better discretion?

Formal training should not be necessary. Just ask employees to place a higher value on their e-mail correspondence. Cut out the reflex e-mailing and start treating e-mail like paper. Apply the same care and consideration when you’re sending an e-mail that you would if you were sending a letter on your company’s letterhead. And remember to consider that your message might be better delivered in person or over the phone.

How does organizing help reduce exposure and litigation costs?

E-mail can be organized like paper correspondence. This means deleting the e-mail you don’t need, and organizing the messages that you keep into folders.

This helps in at least two ways. First, it makes it far easier and cheaper to find and gather relevant e-mail in response to discovery requests. When e-mail is not organized, a litigant often has no choice but to dump massive quantities of e-mail from the server and then use electronic term searches to cull through the data to identify potentially relevant documents. This is an expensive process that can be avoided when e-mail is organized like paper.

Second, when every e-mail must be accounted for and filed, or deleted, the sender tends to place a higher value on each e-mail, give greater care to the contents and more carefully consider whether a message needs to be sent in the first place.

That is the culture you want to instill.

For people who have never organized their e-mail, how can they get started?

When implementing new habits, it is easiest to start with a clean slate. If the task of sorting through every e-mail in your inbox is too imposing, just move the entire contents of your Inbox into a folder titled ‘My Inbox as of [date].’ You can do the same with your sent items. This way, you can start clean and use your new habits going forward, and still have easy access to your old e-mails if you need them.

Have there been any recent developments in the law concerning e-mail discovery?

Plenty. Electronic discovery is probably the single hottest topic in continuing legal education courses, and has been for years. The courts have been very active in this area, too. In fact, the Federal Rules were amended in 2006 to more fully address e-discovery, and the United States Court of Appeals for the Seventh Circuit has its own e-discovery pilot program.

Recently, the Federal Circuit adopted a Model Order designed to reduce the scope and expense of e-mail discovery in patent cases. The order has attracted considerable attention from other federal jurisdictions, some of which have adopted similar orders. It is interesting, however, that for all the attention given to the issue, there has been relatively little discussion about addressing the root of the problem, our e-mailing habits. I think this is going to change as employers continue to learn about the significant costs of housing massive amounts of unorganized e-mail.

John Shonkwiler is a partner at Novack and Macey LLP. Reach him at (312) 419 6900 or jshonkwiler@novackmacey.com.

Published in Chicago

If your business has been injured by another party, your first reaction may be to sue for damages. But by first taking reasonable actions to limit your losses, you can increase your odds of recovering those damages. In most situations in which a business has been injured — whether by theft of trade secrets, a contract breach, etc. — it can take steps to prevent damages from worsening.

For example, say that a supplier is unable to deliver a crucial part to produce your products.

“Rather than halt production and lose all profits that your business likely would receive from selling its products, you could try to find another supplier,” says Courtney D. Tedrowe, a partner with Novack and Macey LLP. “You might pay a higher price, thus reducing your overall profit margin, but you would not be out all of your profits.”

That mitigation of damages, sometimes referred to as the doctrine of avoidable consequences, can be crucial in the event of a lawsuit.

Smart Business spoke with Tedrowe about a plaintiff’s obligations and what courts deem reasonable mitigation efforts.

What obligations does a business have in the event it has been injured?

Frequently, courts and attorneys say that a plaintiff has a duty to mitigate damages, but that characterization is inaccurate. Strictly speaking, a plaintiff does not have an obligation to take steps to limit losses after it has been injured, and will generally not incur liability for failing to do so.

However, if some or all of a plaintiff’s damages could have been avoided had it taken reasonable steps to mitigate them, it might not be able to recover that portion of damages from the defendant. Thus, it is in the plaintiff’s best interest to determine what steps it can reasonably take to avoid unnecessarily increasing damages after injury, and then take those steps. In many cases, the plaintiff can recover from the defendant the cost of making reasonable attempts to mitigate damages.

How does a court decide which actions are reasonable?

First, the defendant must prove that the plaintiff could have taken certain reasonable steps to avoid unnecessarily increasing its damages. What constitutes a reasonable step is determined on a case-by-case basis. However, a plaintiff is not required to take extraordinary measures, and a defense of failure to mitigate is not a basis for a hypercritical examination of the plaintiff’s conduct.

The plaintiff need not assume any undue risks or burdens in an attempt to mitigate its damages. Further, the law does not require the mitigation efforts to be successful; all that matters is that the plaintiff made the attempt.

Second, the defendant generally must prove the amount by which the damages increased because of the plaintiff’s failure to take reasonable steps. The defendant should have evidence not only showing that the plaintiff failed to take reasonable steps to avoid increasing damages but also evidence showing by how much that failure inflated damages.

Under what circumstances is this legal concept most commonly seen?

Mitigation is a defense in almost every case in which the award of monetary damages is claimed. It is usually raised as an affirmative defense in litigation, in which the defendant claims the plaintiff’s damages should be reduced because either the plaintiff actually did mitigate its damages, or, had the plaintiff taken certain actions, its damages would have been less.

In most states, there is an exception to mitigation, sometimes referred to as the lost volume doctrine. In cases in which the plaintiff does a volume business — handles or could handle multiple contracts of the same kind simultaneously — and has lost sales as a result of another’s wrongdoing, the plaintiff might not be able to mitigate its damages by finding a replacement contract. Because the seller is capable of handling multiple contracts simultaneously for little additional marginal cost, it could have had the benefit of both the repudiated contract and the subsequent contract at the same time. Therefore, even if the plaintiff could have obtained another contract after the first was breached, it would not replace the lost contract.

For example, say a fencing company contracts to build a fence for $10,000. The buyer breaches that contract. Shortly thereafter, the company contracts with someone else to build a fence for $10,000. If the company can prove it could have taken both jobs, its damages are based on the net profit it would have made on the breached contract, without regard to its ability to get a subsequent contract. However, although this has been adopted in most states, it hasn’t been in all, and the burden is on the plaintiff, not the defendant, to prove the doctrine applies.

How can a business be affected by the responsibility to mitigate damages?

If a business has been injured and is contemplating litigation, it should be aware of the possibility that the defendant might assert a mitigation defense which, if proven, would reduce the awarded. Thus, as soon as the business learns of an injury, it should take all reasonable steps to prevent damages from unnecessarily increasing. Employees should be asked to analyze all of the possible harms to the business including losses due to business interruption, lost business opportunities and harm to reputation. Once specific potential damages are identified, consider whether there are reasonable means of minimizing or stopping these harms from occurring.

It does not usually matter whether your efforts are successful, only that you took reasonable steps to try to mitigate. Moreover, the law generally does not require you to take undue risks or burdens to try to mitigate damages. If you follow these basic principles, you likely will stand an excellent chance of defeating a mitigation defense.

Of course, you should consult an attorney as to whether mitigation applies, as it will depend on the particular facts in your case and the law of your particular jurisdiction.

Courtney D. Tedrowe is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or cdt@novackmacey.com.

Published in Chicago

If an employee leaves your company, is there anything you can do to stop that employee from taking your customers to his new employer?

Many business managers already know that a noncompete agreement can help stop that from happening because it can preclude the employee from competing for a period of time after he or she leaves. But new developments in the way courts apply noncompete agreements could change how much protection they afford employers, says Steven Ciszewski, a partner with Novack and Macey LLP.

“In Illinois, courts have typically enforced noncompete agreements only if the employer could establish that it has a legitimate business need for the noncompete agreement,” says Ciszewski. “However, one of our appellate courts recently broke ranks and held that the employer does not have to establish a legitimate business need in order to enforce its noncompete agreement.”

The issue is currently being reviewed by the Illinois Supreme Court, and the analysis provided by that court could dramatically change how noncompete agreements are enforced in Illinois.

Smart Business spoke with Ciszewski about these new developments and the effect that the Illinois Supreme Court’s ruling could have on employers in the future.

What new developments in the law governing noncompete agreements should employers be aware of?

The general rule in Illinois has been that noncompete agreements are enforceable only if there is a legitimate business need to preclude employees from competing freely after they leave the company. To satisfy this requirement, the employer typically had to show that the noncompete agreement was necessary to protect either its near permanent customer relationships or its confidential information or trade secrets.

One of the state’s appellate courts recently ruled that an employer no longer needs to make this showing to enforce its noncompete agreement. This has created a conflict among Illinois courts that the Illinois Supreme Court should resolve in the coming months.

What effect will the Supreme Court’s upcoming ruling have on employers?

There are a number of things that could happen and a number of possible effects. One possibility is that the Supreme Court affirms the general rule that has been in place and requires the employer to continue to show a legitimate business reason for its noncompete agreement.

That outcome would essentially leave the law in Illinois the same as it has been in the past.

A second possibility is that the court will agree with the appellate court’s new way of thinking and determine that the employer does not have to show that its noncompete agreement is necessary to protect near-permanent customer relationships or confidential information/trade secrets. If that happens, noncompete agreements could be more broadly enforceable in Illinois.

Another possibility, although less likely, is that the Supreme Court announces an entirely new way of interpreting noncompete agreements that is more strict or more lenient than anything adopted by our appellate courts in the past.

Will there be restrictions on the enforceability of noncompete agreements if the Supreme Court does adopt the appellate court’s new way of thinking?

In all likelihood, yes. Illinois courts still seem to unanimously hold that, in order to be enforceable, the noncompete agreement has to be reasonable in duration and geographic scope. Generally speaking, noncompete agreements that last up to a couple of years and cover a reasonable geographic territory are enforceable. There is no reason to think that these limitations will change, regardless of how the Supreme Court rules on the case currently before it.  But the Supreme Court can make new law if it wants to, so this could change if the court decides to go in an entirely new direction.

How would employers be affected if noncompete agreements are enforceable in more situations?

The knee-jerk reaction is to think that all employers will be happy because they want their noncompete agreements to be broadly enforced in order to protect their business when their employees leave. In many cases, that might be the right reaction, but it can cut both ways because employers often find themselves on both sides of this issue over the long run.

One year, the employer might want its own noncompete agreement to be enforced because it needs to protect its business when its employee leaves. The next year, the same employer might want to hire an employee from a competitor. In that situation, the employer would want its competitor’s noncompete agreement to not be enforced so that it can improve its business by hiring talent away from that competitor.

A business might have the best legal arguments in the world to win the case it has today, but how might that win impact the situation it faces in a year? From the employer’s standpoint, this tension is present in almost every noncompete case and needs to be thoroughly considered before any type of legal action is initiated.

Steve Ciszewski is a partner with Novack and Macey LLP.  Reach him at (312) 419-6900 or stevec@novackmacey.com.

Published in Chicago

More than 47 billion nonspam e-mails are sent every day, and many of those pass through an employer’s e-mail system or an employer-provided mobile device.

“As of mid-2010, approximately 40 percent of corporate employees used employer-provided mobile devices to send and receive electronic messages,” says Andrew D. Campbell, a commercial litigation partner at Novack and Macey LLP.

Managing e-mails can be time consuming and costly for employers, says Campbell.  The time and expense of regulating e-mails can be exacerbated when employees send or receive personal e-mails on employer-provided devices. Personal e-mails sent through employer-owned devices raise unique issues such as who owns these e-mails, and what, if any, expectations of privacy do employees have with respect to nonbusiness e-mails sent via corporate devices?

Smart Business spoke with Campbell about the rights of employers to access e-mail sent on company-owned devices and how an e-mail policy can help protect employers.

What are some of the issues regarding employees sending personal e-mails through their employers’ devices?

Some organizations allow their employees to use employer-owned mobile devices or e-mail systems to send or receive occasional personal messages.

These organizations tend to believe that requiring an employee to use two devices — an employer-provided device for business and an employee-provided device for personal use — will result in employees opting to carry just their own device after hours and on weekends. For these employers, the benefit of greater access to their employees seven days a week outweighs the costs associated with employees sending and receiving personal messages. However, many employers prohibit employees from using employer-owned devices for personal or nonbusiness use. So why do employees continue to send personal e-mail despite these policies? Likely because they feel they can get away with it.

A recent study found that while 95 percent of organizations have policies in place for mobile devices, only 10 percent say that enforcing restrictions on their use is ‘very easy.’ In light of the fact that more than 47 billion e-mails are sent each day, employees may send personal e-mails believing that there is minimal chance that their personal messages will be detected.

Why would an employer want to review an employee’s e-mail?

For the most part, employees use e-mail accounts as permitted by their employers. Yet, there are some who use their accounts to break the law, disparage an employer or transfer trade secrets or confidential information outside an organization. Incoming e-mails can also be a source of electronic viruses, and employers may monitor these e-mails for security purposes. Reserving the right to review an employee’s company-provided e-mail can be extremely important to maintaining the security and integrity of an organization.

When is it permissible for an employer to review personal e-mails?

As with most legal questions, the answer is, ‘It depends.’ Among other things, it depends on whether the employer is a government entity or a private business. Government entities, even when acting in their capacities as employers, are bound by the Fourth Amendment, which prohibits the government from making unreasonable searches of people’s property or effects. Private employers, while not bound by the Fourth Amendment, must still be concerned with potential claims for invasion of privacy.

While the analysis under the Fourth Amendment and privacy claims can differ, one element they share is that employees must have a reasonable expectation of privacy. If there is no reasonable expectation of privacy, an employer’s review of an employee’s e-mails is far less likely to be regarded as violating the law.

How do courts assess whether an employee has a reasonable expectation of privacy?

There are a number of factors that courts will consider. Four of the most common questions addressed are, does the organization maintain a policy banning personal or other objectionable use? Does the organization monitor the use of the employee’s computer or e-mail? Do third parties have a right of access to the computer or e-mails? And did the organization notify the employee of, or was the employee aware of, the use and monitoring policy? The more factors that are present, the more likely it is that a court will find that an employee had no reasonable expectation of privacy in his or her e-mails.

Other factors that courts have considered — although these factors are generally not outcome determinative — include whether the employee has a password; whether anyone other than the employee knew the password; and whether the employee has a private office or a more visible workspace. The harder it is to access an employee’s e-mails, the more likely it is that a court will find there is an expectation of privacy.

What provisions should an organization’s e-mail policy include?

Regardless of whether an employer allows personal e-mail, to minimize the risk of liability from an employee-initiated claim for privacy violation, a policy should, among other things, be in writing; be signed by each employee to whom it applies; state that employees do not have any expectation of privacy in e-mails; notify employees that e-mails may be monitored by the employer; state that all communications sent or received through an employer’s software or hardware are property of the employer; and prohibit the use of employer software or hardware for illegal or harassing purposes.

An alert, reminding employees of the policy when they sign onto their accounts, can also help shield employers from liability for claims of invasion of privacy.

Andrew D. Campbell is a commercial litigation partner at Novack and Macey LLP. Reach him at acampbell@novackmacey.com or (312) 419-6900.

Published in Chicago
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