HR Management & Compliance

Customer Contact Info May Be Trade Secret, Georgia Federal Court Rules

The U.S. District Court for the Northern District of Georgia recently decided a case involving trade secrets and restrictive covenants after a former employee took a customer contact list with him when he left to work with a competitor. The court’s ruling serves as an important reminder for employers.

Facts

Tanium, a cybersecurity management company, employed Max Yago as a salesperson, ultimately responsible for servicing the firm’s largest customers. The employer had him sign an employee invention assignment and confidentiality agreement that restrained him from soliciting its customers and employees or using or disclosing any confidential information.

Computer and phone with images for call, email, social medial, and at sign

In January 2021, Yago accepted a job offer from Wiz, a Tanium competitor. At or about the same time, Wiz hired four other high-level Tanium employees.

Tanium discovered that, while employed, Yago had accessed and run a report aggregating some 60,000 customer contacts and sent it to at least one of the other employees whom Wiz also hired. He also had text contact with at least one of the other employees in which they discussed whether they could “get . . . over” the other individuals who also were hired.

As a result, Tanium sought a preliminary injunction against the departed employees and Wiz under, among other theories, a violation of the agreement as well as the Georgia Trade Secrets Act.

Court’s Decision

Trade secrets. The court first addressed whether the list of customer contacts was a trade secret. Recognizing that “although customer lists which are simply compilations of public information and which could be as easily compiled by third parties are not deemed to constitute trade secrets,” the court held such a list may still be entitled to trade-secret protection when the entity compiling it expends a great deal of time, effort, and expense in developing it and treats it as confidential in its business.

The court believed Tanium adequately protected the customer contact list as confidential, and the firm showed the roster of 60,000 customers and their information couldn’t have been gathered without substantial time and effort. Accordingly, the court found the reports constituted trade secrets and that there was a substantial likelihood of success on Tanium’s claim Yago had misappropriated the report. The court held the company also had demonstrated a substantial likelihood of success on its claim that he had violated the agreement’s nondisclosure provision by engaging in the same behavior.

Employee nonsolicitation. The court also addressed the agreement’s provision prohibiting Yago, for a 12-month period, from “soliciting, encouraging or causing others to solicit or encourage” any Tanium employee to leave the company. As happened in a few other recent cases, the court determined the Georgia Restrictive Covenants Act (RCA) governs the nonsolicitation-of-employees provision.

In contrast with a few recent cases, the court held restrictive covenants “addressing [the] solicitation of employees are enforceable when they are reasonably limited in time and not fatally vague or ambiguous.” Relying on cases decided before the RCA’s enactment, the court found Tanium’s nonsolicitation provision to be enforceable.

Customer nonsolicitation. Finally, the court addressed the provision barring Yago, for a 12-month period, from “directly or indirectly, soliciting, encouraging or causing any current customer” of Tanium to terminate or modify its relationship with the company. The defending parties argued the provision was unenforceable because it wasn’t limited to those customers with whom Yago had material contact.

Recognizing O.C.G.A. §13-8-53(b) clearly contemplates that an overbroad nonsolicitation-of-customers covenant may be narrowed “pursuant to the parameters set forth” in the statute, the court limited the restriction to only those business patrons with whom Yago had material contact. Tanium v. Yago et al.

Bottom Line

This case serves as a good reminder for employers:

  • Customer contact information can constitute a trade secret;
  • The RCA provides a court with greater freedom to modify an otherwise overbroad restriction;
  • A nonsolicitation-of-employees provision may be liberally enforced; and
  • Bad acts performed by an employee before his departure from a company can influence how a court rules.

Jeff Mokotoff is co-chair of FordHarrison’s noncompete, trade secrets, and business litigation practice group. You can reach him at jmokotoff@fordharrison.com.