Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Raymond & Bennett Law Firm : Hartford, Middletown, Glastonbury

When I started this blog, I decided I would keep an eye on lawsuits related to social networking websites as it seems this type of evidence will soon take the place of the smoking gun email of the last ten years.  The impact of social networking evidence in Connecticut business litigation will continue to grow.

My interest in social networking cases started with a Facebook lawsuit so I made a Facebook category on this blog and discussed some concerns for individuals and Connecticut businesses.  Then Twitter exploded to growth of 1000% last year, so I added a Twitter defamation case and a new category.  And now, its finally here ... I need a  LinkedIn category for LinkedIn lawsuits. 

I do not claim to know about all of the social networking lawsuits out there.  There are also some social networking sites that I ignore, like the dying MySpace.  Nevertheless, I do track cases of interest in this area.  You might also check out Megan Erickson's Social Networking blog as a resource to check on these type of claims or visit Dan Schwartz's Connecticut Employment Law Blog for resources and tips on policies for employers related to social networking.  

The LinkedIn lawsuit involves a non-compete agreement and solicitation of employees by a former employee. Molly DiBianca with The Delaware Employment Law Blog detailed the case in a post about the lawsuit filed by TEKSystems against its former employees.  Nothing strange about this type of lawsuit, only in this case, TEKSystems claims it has evidence of breach of the employment contract arising from post-termination solicitation of its employees through the LinkedIn connections of one of the defendants.  Here is a copy of the lawsuit (go to paragraph 37). 

Molly DiBianca states it is the first lawsuit she is aware of using an employee's LinkedIn account.  She may be right, as I am not aware of another case like it.  Nevertheless, I certainly expect this type of social networking evidence to be the focus of more lawsuits and it was only a matter of time for LinkedIn to be involved in a case with media attention.  In Connecticut, we had our own social networking evidence case with Facebook.  In a bullying case involving Miss Porter's School, Judge Arterton ruled that the plaintiff's postings in an expired account were relevant.   

The way I see it, this is only the beginning.  Soon enough, social networking evidence will be as significant and commonplace as email evidence.  At that point, I'll have to find something else to blog about ....

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As we head to the new year, here is a round up from some fellow bloggers on contracts, cobra, wage disputes, patents, and oral agreements for limited liability companies. 

The California Business Lawyer Blog offers a very detailed post about contractual relationships  between manufacturers and suppliers.  The focus is on well drafted agreements eliminating the fears and concerns of both sides.

A lot of talk about the AT&T suits in different states for $1 billion dollars for unpaid overtime.  The suits picked up a lot of steam with a recent employee favorable ruling from the federal court in Connecticut allowing the claim to proceed as a class action. Rush on Business covers some tips for businesses to avoid these suits.

Just in time for Christmas, President Obama has extended the COBRA subsidy.  Dan Schwartz's Connecticut Employment Law Blog covers this topic in detail for employers.

Twin Cities Business Litigation Blog has an interesting post on concerns you might have as a shareholder of corporation that fails to follow corporate formalities.  Gavin Craig gives examples of how a shareholder could be exposed to liability.

Anyone who frequently litigates matters involving limited liability companies will tell you that there is not much case law out there in Connecticut.  It is still a developing area of the common law.  Delaware law is often a good option for law in this area because these issues are more frequently litigated by volume in Delaware.  A good resource is the Delaware Corporate and Commercial Litigation Blog.   Two recent posts concerning oral partnerships and LLC agreements are just an example.

PatentlyO hits on some themes for 2010, including an expected increase in patent prosecution and litigation.    They also have a cool picture of heat miser, a childhood classic.

Jeff Mehalic, author of the West Virginia Business Litigation Blog, writes a detailed follow up post to his coverage of the Connecticut dispute between Charter Oak Lending and CTX Mortgage.  Jeff also comments about a post I wrote on the same case.  The case remains significant as it is an example of what can go wrong when a business grows too fast and no written agreements are in place with employees.

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The short answer is yes, a business does need a contract, also known as a "non-compete agreement," to prevent a former employee from fairly competing in business once the employee resigns.  Even with a written agreement, there are limitations on non-compete agreements because they are viewed as a restraint of trade.  To be enforceable, the restrictions in the agreement must be reasonable in time, scope, and geography. The restrictions also must be reasonable in relation to legitimate business interests you are seeking to protect.   

A poorly drafted agreement, or no agreement at all, can leave a business with little legal recourse to stop a former employee from fair competition once the employee resigns.  Simply put, the law in Connecticut permits fair competition upon resignation.  However, the lack of a written agreement does not give free license to employees to unfairly compete in all circumstances. 

For example, what about an employee that starts competing against your business without your knowledge while continuing to work for you?  Is this fair competition that should be freely permitted?  Depending on the circumstances, this type of conduct can be actionable in a civil case for damages.  The actionable conduct is breach of the employee's common law duty of loyalty, which exists without a written agreement in certain circumstances.  There are also statutes in Connecticut that can protect businesses in certain situations that do not require contracts such as unauthorized computer access or misappropriation of trade secrets.   

I just read a story about a recent case that demonstrated some of the legal issues involved when there are no contracts in place with former employees.  According to the small business report by Carlye Adler of CNN, Charter Oak Lending, located in in Danbury Connecticut, lost a trial against several former employees who allegedly left to work for a larger company, CTX Mortgage.  Charter Oak alleged it lost more than a third of its business and a million dollars in fees after a sudden departure of 10 employees to CTX. The litigation lasted four years and ended with a defense verdict for the former employees. Charter Oak is appealing the decision. 

It appears that the decision against Charter Oak was based in part on the lack of contracts and the categorization of the defendants as independent contractors rather than employees.   The Trade Secrets Blog by Womble Carlyle picked up the story and had an interesting take focused on pure versus unfair competition.  The blog post supports the legal concept that a line can be crossed turning pure competition into unfair business. 

Charter Oak's appeal of this case will be interesting to follow.  The outcome will likely depend on what evidence existed at trial to demonstrate unfair competition prior to the employees' departure along with consideration of the duty of loyalty.  The takeaway is that it is always better to have written agreements to protect your business' customers, client lists, and confidential information.  However, the lack of such an agreement will not always give free license to former employees to unfairly compete in all circumstances.   A close examination of the facts of each case must be undertaken to consider common law and statutory remedies that do not necessarily require agreements. 

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