Employees Stole My Baby…Business!



Most employers want their employees to excel at their jobs—especially when the job requires them to recruit potential clients and customers—but what happens when an employee uses her excellent recruiting skills against her employer?

Competitors are Closer than they Appear

A private fertility and surrogacy agency in San Diego, California was denied a preliminary injunction to stop its former employees from using its confidential information to start a competing business. Physician's Surrogacy, Inc. v. German, 17cv718-MMA (WVG), 2018 BL 33032 (S.D. Cal. Jan. 31, 2018).

Four days after starting her job, a senior surrogacy recruiter enlisted her co-workers to help her take confidential information—including surrogate applications and checklists, intake and screening forms, email templates, and client lists—from the agency. The agency alleges that the employees purchased computer hardware to store the stolen information, created an email address similar to the one used by the agency, and even used the agency’s logo and address in the emails they sent to the clients.

Secrets of the Trade

The employees said that the information they took can’t be considered trade secrets because it’s only used for general business practices, but the agency argued that its information is unique and specifically tailored for its business. It said that it spent a significant amount of time creating the forms, lists, and templates, and that the information was kept secret by requiring all employees and clients to sign a proprietary information and innovation assignment agreement. The agreement clearly prohibited: (1) current employees from engaging in competing business activities without written consent; and (2) former employees from soliciting employees or clients, or sharing confidential information for one year after their employment ends. The agency also said that it spent $260 to $300 in advertising costs per surrogate, showing that it derived economic value from its information and processes.

The court agreed that the agency’s forms, lists, and templates were trade secrets. It also found that the agency’s extensive screening process, requiring multiple rounds of interviews and assessments, was information that could be used to give a competitor an unfair advantage. Additionally, the court said that while the employees had access to the information as part of their job duties, they also owed the agency a duty of loyalty. That duty was breached when they sent the stolen information to the recruiter’s husband and sister-in law, and then allegedly used it to start the competing business while still employed.

Improper Use?

This case turned on whether the agency could show that the employees actually used or improperly shared the information. The employees should’ve been aware that their intentions of using the information to start a competing business would constitute improper use, the court said. The agency clearly showed that the employees likely had the information in their possession, and that it took the necessary measures to ensure that its information was kept secret; however, it failed to meet its required burden of proof and it couldn’t show that any specific employee used the information to its detriment—after amending its complaint twice.

The agency has since filed a voluntary motion to dismiss its claims.

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