Don't have a valid Trade Secret Claim against your departing employee? Have no fear, the AG-GAG Law is here

Sign which reads "Restricted Area No Public Access"

North Carolina's new state law 2015-50 is getting a lot of attention these days, and for good reason.  For starters, the law brings to mind the Primetime Live controversy from the early nineties, when ABC employees obtained employment at Food Lion in order to record certain food handling and sales practices. North Carolina's new law would’ve given Food Lion a new remedy against ABC, as it addresses those situations in which an employee does the following acts: 

  • enters a "nonpublic area” of an employer’s business;
  • does so for a reason "other than a bona fide intent of seeking or holding employment or doing business with the employer;”
  • records images or sound without authorization; and 
  • causes damage or harm to the business.

The new law also brings with it a lot of controversy.  Critics call it an “ag-gag” law, because they fear it will stifle legitimate investigations into farms and food processing facilities.  Critics also say that the new law will hamper investigations into other types of businesses as well, such as nursing homes and daycare centers.  While the law provides some limited exceptions, including those for law enforcement, it’s still a violation to go to the press. Governor McCrory actually vetoed the bill last year, saying that “it does not adequately protect or give clear guidance to honest employees who uncover criminal activity,” but the legislature overrode the Governor’s veto. 

The new law took effect last month, and People for the Ethical Treatment of Animals; Center for Food Safety; Animal Legal Defense Fund; Farm Sanctuary; Food & Water Watch; and Government Accountability Project are among those who have already filed suit in an effort to declare the law unconstitutional. The New York Times recently blasted the law, claiming that “[t]he secrecy promoted by ag-gag laws should have no place in American society."

But there’s one part of the new law that often gets overlooked in these discussions. It applies to a situation that I’ve seen numerous times in my litigation practice. 

Imagine this.  John Smith has been a loyal and faithful employee of XYZ Sales for years, but he lately has grown disenchanted with his job. It’s just not as fulfilling as it once was.  He seeks other employment in his same field, finds a new job, and provides his two weeks’ notice.  One day during the notice period, he secretly downloads a customer list and other company information.  He uses this information at his new job.  XYZ Sales finds out about it, and let’s just say it’s not happy.

Before this new law, XYZ Sales might have filed suit against Smith for breach of a confidentiality agreement, if he in fact ever signed one. Unfortunately, too few employers make use of such an agreement.  XYZ Sales also might have tried to make a claim under the federal Computer Fraud and Abuse Act (“CFAA”), which applies to situations in which someone accesses another’s computer without authorization or in which someone exceeds his or her authorized access.  Unfortunately for XYZ Sales, courts in our region have dismissed such CFAA claims, because John Smith technically had the right to access the information.  He was, after all, still an employee. That he might have copied the information with ill intent is irrelevant under the CFAA.

This leaves XYZ Sales with a possible claim for misappropriation of trade secrets, but this can be extremely hard. Courts in our area require employers to describe such trade secrets with sufficient particularity in their pleadings; merely alleging that an employee stole “processes,” “strategic information,” “designs,” “marketing plans,” and even “customer lists,” can be insufficient. Also, to succeed on its trade secret claim, XYZ Sales must prove that the information is not generally known to others, that the information is valuable to others because of its secrecy, and that it took reasonable steps to protect the secrecy of the information. These are extensive, and expensive, parts of any trade secret litigation.

But have no fear, the ag-gag law is here.  In addition to its prohibitions against unauthorized recording, the new law provides a remedy against any employee who "enters the nonpublic areas of an employer's premises for a reason other than a bona fide intent of seeking or holding employment or doing business with the employer and thereafter without authorization captures or removes the employer's data, paper, records, or any other documents and uses the information to breach the person's duty of loyalty to the employer.”  If John Smith indeed went to work that day intending to copy that information, it looks like XYZ Sales has a claim against him under the new act. 

In pursuing such a claim, XYZ Sales will not have to prove that the information was a secret or that it wasn’t widely known. XYZ Sales will not have to prove that it took any steps to protect the information or that the information was of great value to a competitor.  From my reading of the new law, XYZ Sales will only have to prove that John Smith came to work with the intent to take the information, that he gained the information from a nonpublic part of its business, and that such actions damaged XYZ Sales.  Under the law, XYZ Sales will be able to recover all damages that Smith caused, plus $5,000 for each day that Smith committed a violation.  XYZ Sales can also recover its attorney’s fees.

From a public policy perspective, it will indeed be interesting to see how the courts rule on the attacks to the new law’s constitutionality. It is undisputed that the press has been a powerful force for change in American history, and the ag-gag law does seem to deprive it of potentially valuable sources of information. 

But from a litigator’s perspective, I can’t wait to see how, and to what extent, companies like XYZ Sales make use of the new law in cases involving departing employees.

Image by Mark Buyckawicki, available for use under Creative Commons CCO 1.0 Universal Public Domain Dedication

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Josh Durham Charlotte attorney Bell Davis Pitt

Joshua B. Durham

Josh represents individuals and corporations in a wide number of matters, including business litigation cases, intellectual property disputes, and government investigations.
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