Theft of Company Documents: Employment Practices Liability (EPL) – A Loss Control Opportunity

I don’t like to post US case law, but this situation presents a good loss control opportunity for Canadian companies. This decision, reached on December 2, 2010, is an interesting EPL case. In Joyce Quinlan v. Curtiss-Wright Corporation, the New Jersey Supreme Court found that an employee (even the Executive Directors of HR) can search for and remove company documents and use them to help prove her case of discrimination by her employer. But, to caution those considering such an act, the court did not go so far as to protect her from losing her job for taking the documents. So this employee won her “failure to promote” discrimination claim, but lost her claim for wrongful dismissal.

The legal decision surrounds the US Federal Computer Fraud & Abuse Act (CFAA). Though we don’t have this legislation in Canada, Canadian courts will at least consider US decisions if Canadian precedent is not available. In this case the court was very careful not to protect employees who exceed their employment authorized access to gather information from their employer’s database without a business reason (say for romantic reasons or personal vendettas.) But, the majority of the court felt they needed to protect “the employee’s right to be free from discrimination or retaliation.”

In this article, “When Is It Okay For An Employee To Steal Trade Secrets?” found on mondaq.com, here, and written by Michael R. Greco of Fisher & Phillips LLP, this court applied a specific test called “totality of the circumstances approach.” In coming to their decision, they considered the following; 1) the manner in which the employee obtained the documents (innocent or active investigation), 2) what they did with the documents (shared only with their lawyer or leaked to third parties), 3) the content of the documents (privileged or proprietary information), 4) if the employer had a clearly defined, routinely enforced, confidentiality policy, and did the employee violate their duty of loyalty to safeguard confidential information obtained during employment, 5) if the document was material to the employee’s case or just disruptive, 6) why the employee took the document instead of merely describing it to counsel so that it could be sought in discovery, and, 7) all of the above factors must be considered in the context of the strong competing interests – the employee’s interest in being free from discrimination and retaliation, and the employer’s interest to operate it business within the bounds of the law with an expectation that its employees will behave with loyalty.

The value of case law for loss control purposes is that for every situation that goes to trail (and subsequently to appeal) there must be tens, if not hundreds, of similar situations that were never made public. Public or not, these employment situations can cause significant loss to a company, in legal fees, severance costs, down-time, management distraction and reputational damage. Therefore, if the success or failure of the case hinged on a few specific actions, then every company could benefit by taking a few actions to avoid the same loss.

This case demonstrates that courts look at the specific actions taken by corporations. The mere existence of a boilerplate policy or procedure is not enough. It must be appropriately communicated to all stakeholders, and the company must be able to demonstrate that the policy has been routinely enforced. This time it is regarding confidential corporate data. But it is just as applicable to sexual harassment policies, insider trading procedures, and many other loss control tools.

If you would like more information on Employment Practices Liability, Directors’ and Officers’ Liability, Professional Liability or Fidelity insurance, please contact me, Greg Shields, Partner, Mitchell Sandham Insurance Service, gshields@mitchellsandham.com, or at 416 862-5626.

CAUTION: The information contained in the Mitchell Sandham website or blog does not constitute a legal opinion or insurance advice and must not be construed as such. It is important to always consult a registered and truly independent insurance broker and a lawyer who is a member of the Bar or Law Society of the relevant jurisdiction with regard to this material before making any insurance or legal decisions. All material is copyrighted by Mitchell Sandham Inc. and may not be reproduced in any form for commercial purposes without the express written consent of Mitchell Sandham Inc. Anyone seeking to link this site from any external website must receive the consent of Mitchell Sandham Inc. by sending an e-mail to gshields@mitchellsandham.com.

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