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Can you take clients when you leave a job?

In this economy, more companies are willing to 'take extra steps' to protect their business from former employees who bring clients or trade secrets to their next gig.

By Anne Fisher, Fortune senior writer
June 20, 2008: 4:44 AM EDT

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(Fortune) -- Dear Annie: I got laid off from a brokerage firm, and the hiring situation in this business is so grim that people are calling me looking for job leads, if you can believe that. (If I knew of a job opening, I'd grab it myself.) I've always toyed with the idea of starting my own firm, and this seems like a good time to do it, since a number of my clients told me, when they heard I was leaving, that they'd like to come with me wherever I'm going. With half a dozen good-sized, well-established accounts, my new business would be off to a pretty strong start. But can my employer stop me from taking them? I did not sign any kind of non-compete agreement when they hired me. -Just Wondering

Dear J.W.: Michael Greco, a partner in labor law firm Fisher & Phillips (www.laborlawyers.com) (no relation to yours truly), is a member of a 12-person team of lawyers who handle nothing but cases where employees leave and take clients or proprietary knowledge with them.

"We hear your question a lot when the economy is either dramatically improving or getting dramatically worse," says Greco. "So we've been hearing it a lot lately. In recessionary times, companies are willing to take extra steps to protect their business."

Those companies can now add a new weapon to their arsenal: The Uniform Trade Secrets Act, which has been enacted by almost all of the 50 states, defines a trade secret as any valuable information that is not known to the public and that a company has taken "reasonable" steps to keep under wraps. In May, the Ohio State Supreme Court affirmed that a company's client list falls under the heading of trade secrets, and thus the UTSA applies, so that an employee who leaves and takes one or more clients is wide open to legal action.

The court also said that a client list is still a client list, even if an employee carries it only in his or her memory, rather than on paper or as an electronic document. (For legal eagles who want to read all about it, the citation is Al Minor & Assoc., Inc. v. Martin, 117 Ohio St. 3d 58, 2008-Ohio-292.)

"I do a lot of work in the securities industry, and those firms definitely consider their client lists to be proprietary trade secrets," says Greco. "Even in instances where the firm posts the names of big institutional clients on its Web site, other information about those clients - when their contracts expire, what rate they paid, who their contact person is, and so on - is still considered highly confidential."

It hardly seems fair to lay you off and then tie your hands, especially since it sounds as if your clients approached you about following you to your next job (or your own firm), rather than you buttonholing them. In ambiguous situations like this, says Greco, some judges might side with your former employer, on the grounds that even if you were terminated, you're still a competitive threat. Other courts might rule in your favor.

"If your clients approached you, not vice versa, some judges would say you can't be expected to turn away business," Greco says. "But in all cases, it's up to the individual judge to exercise what is called 'equitable discretion' and decide whether or not to issue an injunction" barring you from taking these clients.

In any event, you'd be playing Russian roulette with your career: If you end up in court, even if you won, you'll have shelled out hefty legal fees, and blackened your name in the industry too.

By the way, the fact that you never signed a non-compete agreement with your former employer doesn't matter. "Clients are still considered a trade secret whether you signed anything or not," says Greco. He adds: "Anyone who is changing jobs should be aware that, once you start copying files, e-mailing information to your home e-mail address, and so on, you're at risk of running afoul of the Uniform Trade Secrets Act, and companies are cracking down on that now - far more than they were when business was booming and there was plenty of money around."

Greco also advises anyone changing jobs to read the paperwork carefully - both what they signed at their old job and what a new employer is asking them to sign. A growing trend: So-called garden leave (or gardening leave) clauses, which require an employee to give at least 90 days' notice of his or her departure, during which time the employee must stay home and avoid all contact with customers. (Hence the name: You'll have time to do plenty of gardening, or whatever else floats your boat.) The purpose of a garden leave is to give your employer a head start in trying to hold on to your clients before you begin working at a different firm.

"Young people especially now have an expectation of moving around a lot from one firm to another," notes Greco. "So it's important to be aware of these kinds of employment agreements that can really slow you down."

Indeed. It's one thing to take a three-month vacation between jobs because you want to. It's another thing to stay home puttering around the garden because you have no legal choice.

Readers, what do you think? Is it fair to take clients with you when you change jobs? Is it fair for employers to ask you not to? Have you ever been asked to sign a non-compete agreement, or any other employment contract that made you think twice? How did it work out? Post your comments on the Ask Annie blog. To top of page

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