Like the hit show "How to Get Away with Murder," the recent New Jersey ruling in Spencer Sav. Bank SLA v. McGrover (App. Div. March 5, 2015), instructs employees looking to remove their employers' confidential documents and trade secrets.
Executive Summary: Like the hit show "How to Get Away with Murder," the recent New Jersey ruling in Spencer Sav. Bank SLA v. McGrover (App. Div. March 5, 2015), instructs employees looking to remove their employers' confidential documents and trade secrets. While still employed with Spencer Savings Bank, loan officer Michael McGrover admitted taking company documents and transmitting them to his new employer. The appellate court nonetheless confirmed that McGrover breached no duty of loyalty to Spencer because the "competing rights of the employee" outweighed Spencer's right to safeguard its confidential documents.
The facts of the case are becoming increasingly familiar: Spencer hired McGrover in March 2003. After receiving a negative performance review in 2012, McGrover searched for new employment. Before leaving Spencer to begin a comparable job at a competing bank, McGrover used his personal email account to send himself 40 documents from a Spencer shared drive he created. Spencer eventually learned that McGrover took the documents and sued him, claiming he stole trade secrets and confidential and proprietary documents and impermissibly used those materials in his subsequent employment.
The appellate court affirmed the lower court's rejection of Spencer's various common law claims for misappropriation of confidential information and for violation of New Jersey's Trade Secrets Act and Computer Related Offenses Act. The court confirmed that 38 of the 40 documents admittedly taken by McGrover were generic banking forms commonly used in the industry; the remaining documents were neither confidential nor used by McGrover after his departure from Spencer; and Spencer sustained no damages attributable to McGrover's conduct. In affirming that McGrover had not breached his duty of loyalty to Spencer, however, the Appellate Division relied upon the standard created by the 2010 New Jersey Supreme Court in Quinlan v. Curtiss-Wright Corp. to assess when employee self-help is appropriate in a claim of discrimination in the workplace.
The Quinlan Case
McGrover represents the first time the Quinlan standard has been applied outside of a discrimination claim. In Quinlan, a current employee sued her employer under New Jersey's Law Against Discrimination (LAD), contending that she was the subject of discrimination when passed over for promotion in favor of an allegedly less qualified man. In the middle of her LAD litigation, her employer learned that Quinlan impermissibly removed more than 1,000 pages of confidential personnel documents—ostensibly to aid in her prosecution of her lawsuit. Upon this revelation, her employment was terminated.
New Jersey's Supreme Court framed the unique issue in Quinlan as the creation of "the appropriate framework against which courts may weigh and consider whether, and to what extent, an employee who finds, copies, and discloses an employer's otherwise confidential documents in the context of prosecuting a discrimination case was engaged in conduct protected by the LAD." (Emphasis added). In undertaking that challenge, the Court balanced the rights of individual plaintiffs seeking to vindicate their important civil rights against those of employers legitimately prohibiting acts amounting to theft of confidential material.
Quinlan's Six-Part Test
In analyzing whether Quinlan overstepped her bounds by taking confidential personnel documents to prosecute her discrimination claim, the New Jersey Supreme Court evaluated:
- How she came to have possession of, or access to, the documents.
- What she did with the documents.
- The nature and content of the documents (weighing the strength of the employer's interest in keeping the documents confidential).
- Whether her disclosure violated a clearly identified company policy on privacy or confidentiality.
- The circumstances relating to the disclosure of the documents (to balance their relevance against whether their use or disclosure was unduly disruptive to the employer's ordinary business).
- The strength of her expressed reason for copying the documents.
Applying Quinlan to McGrover
Viewing the McGrover facts through the Quinlan lens, the appellate court determined that McGrover had not breached his duty of loyalty to Spencer—despite diverting Spencer documents to himself during his employment to use them at his next, competitive employment. Central to this finding was the court's conclusion that:
- McGrover obtained some of the material from other banks, authored some, and participated in developing others;
- The documents contained generic information common to the banking industry;
- Spencer did not prove that McGrover's disclosure of materials disrupted its business operations or caused compensable damages;
- After McGrover gave notice of his intent to resign and join a competitor, Spencer did not take immediate measures to block his access to its confidential information; and
- Spencer did not establish it had a legitimate interest in keeping the documents confidential or that its purported interest trumped McGrover's competing right to maintain a collection of reference materials he collected before joining Spencer.
Employers' Bottom Line: Proof of loss sustained by the company remains a vital element of trade secret claims. Unauthorized retention or disclosure of even confidential company information—without showing tangible damages—might be insufficient to win restrictive covenant litigation in New Jersey. Likewise, swift and decisive action should be taken to secure confidential information and trade secrets from departing employees. Every passing day that the soon-to-be former employee has unchecked access to company data enhances the risk of loss to the company and minimizes the chance of a successful enforcement action. Deactivating network access, collecting hard copies, and a probing exit interview are a few ways to reduce risk going forward.
If you have questions regarding this Alert or other labor or employment related issues, please contact the author, Mark A. Saloman, email@example.com, who is a partner in our Berkeley Heights, New Jersey office and briefed and argued the Employers Association of New Jersey's amicus position in Quinlan. You may also contact the FordHarrison attorney with whom you usually work.