Personal Information Concerns for the Employee/Customer: Part 1 – Who Owns Customer and Employee Information

Originally posted on December 11, 2006

by Tichelle Sorensen

1.0 Defining Customer Information as Property

In the wake of a recent privacy policy update by AT&T Corporation defining customer information for some of its products as corporate property,[1] consumer advocates expressed concern over the possible implications for customers of companies who adopt these types of policies.[2] Although subsequent retractions indicate that concern over the perceived breadth the AT&T policy may have been premature (the AT&T policy will only apply customers of certain products), the debate remains relevant.

This concept of personal information as corporate property is especially interesting in the context of employment. Some employers, spurred by concerns of declining productivity, potential liability, or loss prevention have implemented policies designed to closely monitor much of their employees work life. Outside of work, most people follow the expectation that their activities are personal, and not subject to the disapproval of their employer – despite several recent examples demonstrating that this is not always the case.

2.0 Customer as an Employee

Where an employee of a company is also a customer, the implications are even more significant, as employees are clearly more identifiable and have more at stake. Companies routinely gather detailed information about their customers, with increasingly sophisticated technology used to track shopping habits and brand preference. Many supermarkets now use club-type cards, often required to access sale prices and other perks. At some stores, this creates easily accessible and highly detailed customer records. Where a company provides telephone or internet based services, the ability to review a person’s calling records and internet habits can be incredibly revealing – and somewhat uncomfortably so – about their personal habits, beliefs, and practices.

With this amount of information available, both the employee and company should be aware of how these details can be used in the context of employment policies and actions.

As an example, in 1997, the Seventh Circuit Court of Appeals was presented with a case involving Ameritech Corporation,[3] which was sued by a former employee who was fired for violating a company policy following an internal investigation based substantially on the employee’s home telephone records.[4] Ultimately, the court found no basis for Federal Jurisdiction and remanded to Illinois State Court, but expressed concern over the potential implications of the company policy:

“Ameritech’s response is eerily reminiscent of Orwell’s Big Brother…Ameritech’s lawyer stressed at oral argument that the MUD records “belong” to Ameritech, and from that he reasoned that Ameritech had the right to consult those files in the course of its internal management of the company. This means, in essence, that every Ameritech employee, from the CEO on down to the lowliest worker, can expect to have Ameritech reading the records of telephone calls placed from his or her line (which is what MUD records are) at any time, for any reason. Furthermore, the logic of Ameritech’s ownership argument suggests that Ameritech could listen in to anyone’s telephone calls whenever it wants, calling employees on the carpet for spending too much (or too little!) time in the evening on the telephone, criticizing them for patronizing the wrong “900” numbers, and reviewing their calling records every time they take a sick day off.”[5]

The court also indicated that the absolute ownership policy might be overly broad, in violation of the federal Communications Act.[6]

In a subsequent appeal following remand, the Illinois Court of Appeals found that the federal Electronic Communications Privacy Act[7] authorized the actions of the employer, Ameritech, to use or disclose communications to protect “..the rights or property of the provider of that service.”[8] The court held that “right or property” includes protecting the company’s “monetary resources” which, in the context of Schmidt, would be depleted because the employee took an additional paid vacation while on disability leave (despite a company policy to the contrary.)[9] The court further reasoned that the investigation into the employee’s activities during the time he was on leave – which included visits by supervisors to his residence, and reviewing records of calls made from his home number and personal calling card – was “reasonable in light of federal case law that requires an employer to conduct a documented investigation into an employee’s alleged misdeeds before the employer may discipline that employee.” [10]

3.0 Employee Expectations

What expectation should employees have of privacy in their personal telephone records? If the employer is a telecommunications provider, and the records are reviewed in order to investigate employee fraud or protect some financial interest of the employer, the ECPA seems to provide protection for the use of personal information in this context.

However, employers should be cautioned against implementing blanket policies of monitoring the private actions of employees without seeking the advice of counsel. Schmidt involved an isolated reviewing the calling records of one employee, in the course of an investigation into whether that employee lied about taking a vacation while he was on disability leave. Had the company monitored all employee’s home telephone records on a random and continuous basis – perhaps the court might have responded with the “Big Brother” analysis.

Employees signing up for the services of their employers should expect that the information contained in those records could be used in the course of an investigation affecting their employment. Similarly, this would also apply where the employer provides and pays for cellular telephone service, calling cards, or even credit cards. If records are submitted to the company for payment, employees should not expect that they will not be carefully reviewed by the employer.

4.0 Lessons Learned

If there is a lesson to be learned from the AT&T announcement, it may be that a clear policy is the best path to take. Companies who chose to characterize their customer information as corporate property can disclose their intent in the context of privacy statements or employee handbooks. This may not prevent litigation questioning the boundaries of the use, but employees who are aware of these policies, like all customers, should have the option to take their personal business – and information – elsewhere.

[1] The full text of the AT&T Policy is available online at http://help.sbcglobal.net/article.php?item=8620 [2] Sara Kehaulani Goo, Concerns Raised Over AT&T Privacy Policy, Wash. Post, Friday June 23, 2006, at D05 [3] Ameritech, one of the divested AT&T Regional Operating Companies, merged with SBC in 1999; in 2005 SBC merged with AT&T Corp. to create AT&T Inc. =”_ftn4″ id=”_ftn4″>[4] Schmidt v. Ameritech, 115 F.3d 501 (7th Cir. 1997) [5] Schmidt at 504 [6] Codified in, 47 USC §605 [7] Codified in, 18 USC §2511 [8] Schmidt v. Ameritech Illinois 329 Ill.App3d 1020 (2002) [9] Schmidt at 1034 [10] Schmidt at 1034, citing Babb v. Minder 806 F.2d 749, 756 (7th Cir. 1986)

Noncompete Agreements – Are they Valid in Oregon?: The Oregon Legislature significantly changes Employment Laws including Noncompetition Agreements

Originally posted on October 22, 2007

By Robert Swider and Steve Leasia

Oregon employers need to be aware of changes made by SB 248 which the Governor signed into law after a protracted battle in the Legislature. This Bill makes several significant changes to two areas of Employment Law for employment agreements entered into after January 1, 2008.

The law provides that employment arbitration and noncompetition agreements are voidable unless one of two conditions is met:

(1) The employer must inform the employee of the agreement’s requirements in a written employment offer received by the employee at least two weeks before the first day of employment, or

(2) The agreement is entered into upon a bona fide advancement of the employee if the requirements are disclosed in a written notice of advancement at least two (2) weeks prior to the effective date of the employee’s advancement.

The law also provides that other agreements, such as nonsolicitation agreements, are not subject to the bill’s requirements.

The new law establishes additional requirements for enforcement of noncompetition agreements. Such agreements are non enforceable unless:

(1) The employee is an individual engaged in administrative, executive or professional work who: (a) performs predominantly intellectual, managerial or creative tasks; (b) exercises discretion and independent judgment; and (c) is paid on a salary basis.

(2) The employer has a “protectable interest”. A “protectable interest” means either the employee (a) has access to trade secrets; (b) has access to competitively sensitive confidential business or professional information (i.e. product development plans, product launch plans, marketing strategy or sales plans); or (c) is employed as on-air talent.

(3) The total amount of employee’s gross salary and commissions on an annual basis at the time of termination exceeds the median family income for a family of four as determined by the United States Census Bureau. According to the Federal Register of March 28, 2007 the median family income for a four-person Oregon family will be $61,945 for 2008.

This new law further establishes that noncompetition agreements may not exceed two years. The new law also permits employers to enforce an otherwise voidable noncompetition agreement for up to two years, in certain instances, if the employer compensates the employee for the time the employee is restricted from working. The employer must pay the employee compensation the greater of an amount equal to 50% of the employee’s annual income from the employer at the time of termination or 50 percent of the median family income for a four-person family as published by the Census Bureau for the most recent year available at the time of termination. According to the Federal Register of March 28, 2007 the median family income for a four-person Oregon family will be $61,945 for 2008.

It is important to note that this law is not retroactive and significantly for employers, it does not apply to a covenant not to solicit employees of the employer, or solicit or transact business with customers of the employer. Employers can require that their employees sign these covenants, as long as they are separate from the noncompete agreements.

What Does This Mean For Employers?

Employers need to determine whether they have a “protectible interest” with respect to their departing employee (e.g. is there a valid basis for imposing a noncompetition covenant upon specific departing employees.) They will also have to ascertain whether it is proprietary information such as trade secrets that the employer is trying to protect or valuable customer information and/or relationships.

If an employer seeks to protect customer relationships, as is often the case for a departing sales representatives, it should consider using a separate nonsolicitation agreement that prohibits the departing employee from transacting business with the employer’s customers or soliciting the employer’s employees for a reasonable period of time.

If an employer is trying to protect proprietary information, they will need to strictly follow and document the two-week advance notification requirement and limit the term of the noncompetition agreement to two (2) years.

Employers can expect to pay more money to enforce noncompetition agreements against any employee who earns under about $62,000. Of course, for employees who earn less than $62,000 at the time of their departure, the employer can elect to waive the noncompetition agreement and not make severance payments if it determines that the economic benefit does not warrant the added severance costs.

Employers are well-advised to review the terms and conditions of their current offer letters, employment agreements, employment policies and notifications of advancement and should seek the assistance of qualified legal counsel.

H1B Visa Update for FY 2011 Applications

by Emilee Preble

At a venture capital conference, partner Martin Medeiros moderated a panel of five venture capitalists and asked the questions: “What was the one thing that makes you invest in a deal.” Five out of five venture capitalists said “the team.” A second question was posed, what made a deal fall apart: two said “the team”, three said problems with intellectual property. The team is key by any measure. Entrepreneurs today must search the entire planet for talented teams. The H-1B visa is a useful tool for businesses to bring skilled foreign workers to the United States in specialty occupations. Typically these positions are in the science and technical fields due to the visa requirements of education, theoretical and technical expertise on behalf of the foreign employee.

The USCIS has created certain quotas for H-1B visas: 65,000 for the regular cap and 20,000 for those applying under the master’s (or advanced degree) exemption. Only new petitioners are counted in the fiscal year quotas; however, there are some exceptions that may apply to employees who were counted in the H-1B cap in previous years. Employers should check the visa history of their applicants to ensure they conform to current requirements.

FY 2011 H-1B Cap Count
*Data table recreated from USCIS.com and current as of October 22, 2010.

Cap Type Cap Amount Cap Eligible Petitions
H-1B Regular Cap 65,000 44,300
H-1B Master’s Exemption 20,000 16,200

 

As of October 22, 2010, there were still 24,500 H-1B visas available for FY 2011 (beginning October 1, 2010). Though the cap remains open, there is no way to predict when these visa quotas will be exhausted. As an employer, the best practice is always to file employee petitions early. Remember, H-1B petitions may not be filed more than six-months in advance of the petitioners requested start date.

Click here for more information on the H-1B cap and filing requirements from USCIS.