What's Considered Confidential?
Question: An employee recently left our firm and we have reason to believe he took client lists with him. His employment agreement says that he is not supposed to take any confidential information from the firm when he leaves. But confidential information is not precisely defined in our agreement. Are names and addresses, such as those found on client lists, generally considered confidential information in New York, or not?
Answer: Too often, departing employees take valuable business information with them out the door, including client lists. Employers may use restrictive covenants, such as confidentiality provisions in employment agreements, to protect the goodwill built up with clients and to prevent the misuse or exploitation of trade secrets and confidential client lists. Ken J. Pezrow Corp. v. Seifert, 197 A.D.2d 856, 856, 602 N.Y.S.2d 468, 469 (4th Dep't 1993). Unfortunately for employers in New York, client lists generally are not confidential under New York law and are not protectable unless the information qualifies as a trade secret. H. Meer Dental Supply Co. v. Commisso, 269 A.D.2d 662, 664, 702 N.Y.S.2d 463, 465 (3d Dep't 2000). Thus, restrictive covenants relating to client lists will not be enforced unless the list is truly confidential and protectable as a trade secret -- meaning the information is not readily discoverable through public sources. Pezrow, 197 A.D.2d at 856; Amana Exp. Int'l, Inc. v. Pier-Air Int'l, Ltd., 211 A.D.2d 606, 606, 621 N.Y.S.2d 108, 109 (2d Dep't 1995). As with trade secrets generally, there also must be a substantial element of secrecy concerning the list. Q-Co Indus., Inc. v. Hoffman, 625 F. Supp. 608, 617 (S.D.N.Y. 1985).
The New York State Court of Appeals, in its seminal case on customer lists stated that "where the customers are not known in the trade or are discoverable only by extraordinary efforts courts have not hesitated to protect customer lists and files as trade secrets. This is especially so where the customers' patronage had been secured by years of effort and advertising effected by the expenditure of substantial time and money." Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387, 392–93 (1972). However, "trade secret protection will not attach to customer lists where such customers are readily ascertainable from sources outside the former employee's business unless the employee had stolen or memorized the customer lists." Amana, 211 A.D.2d at 606–07. See also Silfen, 29 N.Y.2d at 427. Mere recollection of client information, though, is not actionable. Buhler v. Michael P. Maloney Consulting, Inc., 299 A.D.2d 190, 191, 749 N.Y.S.2d 867, 868 (1st Dep't 2002).
When determining whether client lists are protectable, courts typically examine the following factors: "(1) the extent to which the information is known outside the business; (2) the extent to which the information is known by employees and others involved in the business; (3) the extent of measures taken by the company to guard the secrecy of the information; (4) the value of the information to the company and its competitors; (5) the amount of effort and money expended by the company in developing the information, and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others." Consol. Brands, Inc. v. Mondi, 638 F. Supp. 152, 156 (E.D.N.Y. 1986).
Here, if the client list consists solely of names and addresses that could be obtained through public sources, it is unlikely that a court would find it to be protected confidential information. Cf. Repair Tech Inc. v. Zakarin, 8 Misc. 3d 1022(A), 803 N.Y.S.2d 20 (Sup. Ct. 2005) ("A customer list will be treated as a trade secret where the names and addresses of the customer are not known in the trade or can be obtained only through extraordinary effort.") However, if there is specific information about clients in the list beyond general customer information, such as a client's particular pricing, preferences and activity history, the client list will likely be protectable because such information is not publicly available. See, e.g., id.; Kelly v. Evolution Markets, Inc., 626 F. Supp. 2d 364, 373 (S.D.N.Y. 2009); Unisource Worldwide, Inc. v. Valenti, 196 F. Supp. 2d 269, 278 (E.D.N.Y. 2002); Stanley Tulchin Assocs., Inc. v. Vignola, 186 A.D.2d 183, 185, 587 N.Y.S.2d 761, 763 (1992).
There is no guaranteed way to prevent employees from taking data when they depart, but employers can implement safeguards, create and nurture a culture where confidential information is taken seriously and position the company for enforcement and litigation, if necessary. In addition to having confidentiality agreements in place, employers should ensure that employees are properly trained, that there are appropriate IT security measures in place, such as disabling departing employees' access immediately, and that there is appropriate enforcement to make sure employees understand the employer will take action to protect its confidential information.
Keisha-Ann G. Gray is a partner in the Proskauer’s Labor & Employment Department, resident of the New York office. Proskauer Associate Minia E. Brememstul, an associate in Proskauer's New Orleans office, assisted with this article.