What rights does an employer have against a former employee who solicits its customers? When is it okay for a former employee to contact her former customers to ask them to follow her to a new business venture? While there are no plain and simple answers, the outcome depends largely upon the extent to which the employer has tried to keep its customer list confidential, as well as the extent to which it has actually been able to do so.
Soliciting v. Stealing
In New York, an employer cannot take legal action against former employees who solicit its customers unless the employer's customer list "could be considered a trade secret or there was wrongful conduct by the employee, such as physically taking or copying the employer's files or using confidential information." WMW Machinery Company, Inc. v. Koerber AG, 240 A.D.2d 400, 402, 658 N.Y.S.2d 385, 387 (2d Dep't 1997). If a client list can be independently compiled from sources outside the employer's business, then such a list would not be a trade secret and would be unprotected unless a former employee steals or copies the list. Id. In addition, if a limited number of names and phone numbers of clients are "imbedded in [the] memory" of a former employee because she had frequent contact with those customers, then such information is not susceptible to trade secret protection. Inflight Newspapers, Inc. v. Magazines In-Flight, Inc., 990 F. Supp. 119, 128 (E.D.N.Y. 1997), citing Davis & Co. v. Ludemann, 160 A.D.2d 614, 616, 559 N.Y.S.2d 240 (1st Dep't 1990) (denying injunctive relief where former employee contacted employer's customers based on recollection).
In WMW Machinery Company, the technical advisor of the plaintiff machine distributor resigned and went to work for its competitor trying to solicit WMW's clients. A state appellate court held that WMW's customer list was not entitled to trade secret protection because it was not confidential information about WMW's customers and it was "readily discoverable through public sources." For example, two of the allegedly illegally solicited clients were on a list of manufacturers that could be obtained from a popular industry magazine.
Similarly, Newton Garment Carriers, a trucking company, sued a former employee claiming that after he had been fired, he went to work with a competitor improperly soliciting Newton's customers. Newton Garment Carriers, Inc. v. Consolidated Carriers Corp., 673 N.Y.S.2d 631 (1st Dep't 1998). Many of these customers, however, were on a list that Newton had purchased from a third trucking company. Consequently, the court dismissed Newton's lawsuit because Newton's customer list was not a trade secret. The list was not "private" because the employee had independent access to the list of potential customers and because New York has a public policy of insuring competition in the garment industry.
Moreover, even if an employee enters into a "restrictive covenant" or non-solicitation agreement with her employer, courts have permitted the former employee to solicit her former employer's clients. Ken J. Pezrow Corp. v. Seifert, 197 A.D.2d 856, 602 N.Y.S.2d 468 (4th Dep't 1993). Thus, a state appellate court recently refused to enforce a non-solicitation agreement because the client list did not qualify for trade secret protection. H & R Recruiters, Inc. v. Kirkpatrick, 243 A.D.2d 680, 663 N.Y.S.2d 865 (2d Dep't 1997). The court reasoned that the identities of the customers on the list "were readily discoverable through various non-confidential sources, such as company directories and job postings that are widely distributed to placement firms," and the court found no evidence that the employee had pirated the list.
Factors in Favor of Protection
These decisions suggest that New York courts are extremely reluctant to prohibit employees from soliciting their former employers' customers. Judicial protection may be available, however, in the case of highly confidential and sensitive client information lists, especially when the employer's business involves "high-tech" or newly developing industries.
In DoubleClick, Inc. v. Henderson, 1997 WL 731413 (N.Y. Co. Ct., Nov. 7, 1997), two Internet advertising company executives began planning their own Internet advertising company while they were still working for DoubleClick. After DoubleClick learned about their business plans and terminated their employment, the court granted DoubleClick's request for a six-month injunction barring the executives from starting or working for a company competing with Doubleclick if their work included providing advice about any aspect of Internet advertising.
The DoubleClick court did not specifically enjoin the defendants from soliciting DoubleClick clients, but its decision clearly contemplates a bar against such solicitation. The court found that DoubleClick's confidential information about its customers constituted trade secrets because it did not publish this "highly sensitive" data and, perhaps more importantly, the court found evidence that the former employees had misappropriated the confidential information. The "unclean hands" of the former employees, combined with the extremely secretive customer information retention policy of the former employer, convinced the court that this was the type of case where former employees should not be allowed to solicit customers from their former employer.