By: Andrew P. Botti
A new case out of the Superior Court Business Litigation Session makes clear that a former employee may not utilize information stored solely in his memory for the benefit of his new employer if that information is clearly “Confidential Information” and subject to a written employment agreement with restrictive covenants. The case is Fidelity Brokerage Services LLC v. David Callinan and UBS Financial Services, Inc., Suffolk Superior Court CA No. 1884CV02098 – BLSI (February 7, 2019) (Davis, J).
In this case, the ex-employee’s clients came to him almost exclusively through the internal operations of his employer, and not “cold calls” made by the employee himself. The employee was subject to a non-solicitation provision which stated:
during [his] employment and for a period of one year following [his] separation from employment by the Fidelity Companies, [Mr. Callinan] will not use any Confidential Information belonging to the Fidelity Companies to directly or indirectly, on [his] own behalf or on behalf of anyone else or any company, solicit in any manner or induce or attempt to induce any customer or prospective customer of the Fidelity Companies to divert or take away all or any portion of his/her/its business from the Fidelity Companies or otherwise cease the relationship with Fidelity Companies. During this same period, [Mr. Callinan] also will not, directly or indirectly, on [his] own behalf or on behalf of anyone or any company, solicit in any manner or induce or attempt to induce any customer or prospective customer with whom [he] had personal contact or about whom [he] otherwise learned during the course of [his] employment with Fidelity Companies.
When the employee resigned and went to work for a direct competitor, he created a written list of clients from his old firm which “he claims to have prepared entirely from memory.” He gave the list to his new employer who then filled it out using publicly available sources. Subsequently, the former employee used the list to contact the clients of his former employer.
The former employer sued for violation of the Employment Agreement, and sought an injunction prohibiting the former employee from contacting the subject clients. The Court found that the identities of the clients constituted “Confidential Information” as set forth in the Employment Agreement. The Court found specifically:
The manner in which confidential information is retained by a former employee does not affect whether this information is, in fact, confidential. If the identity of Fidelity’s clients constitutes “confidential information” when the information is embodied in written form, such as a customer list, it remains confidential when it resides in the memory of a former employee[.]
The Court expressly rejected arguments based upon American Window Cleaning Co. of Springfield, Mass v. Cohen, 343 Mass. 195 (1961) which had held “[i]t is established that discharged employee, without the use of a list belonging to his former employer, may solicit the latter’s customers.” American Window also stated that “[r]emembered information as to the plaintiff’s prices, the frequency of service, and the specific needs and business habits of particular customers was not confidential”. Id. at 199. (Emphasis added). See also CSC Consulting, Inc. v. Arnold, 13 Mass. L. Rptr. 535 (2001) at N. 3 (“an individual who holds a high-level position, however, is not necessarily barred from competing. [She] has the right to use her general skills, knowledge, experience and memory,” citing J.T. Healy & Son, Inc. v. Murphy, 357 Mass. 7928, 740 (1970) (former employees “had a right to use their general knowledge, experience, memory and skills.”) (Emphasis added).
In Fidelity Brokerage the Court also found that the former employee had directly solicited his firm’s clients, thereby contravening the strictures of the Employment Agreement. The former employee claimed that all he did was call his former clients and tell them he had gone to another firm, unless the client requested additional information. The Court found that the “client calls were effectively solicitations wrapped in the thin veneer of an announcement.” The calls were designed to persuade the clients to transfer their accounts, not just to inform them of the employee’s new position. “As this case makes clear, verbal departure announcements are innately problematic… they can easily veer into prohibited solicitation.”