Before sending a letter to an ex-employee demanding cessation of unauthorized disclosures of the company's confidential business information, an employer should consider various factors. For example, the company should consider the extent of the threat posed by the former employee, the company's chances of success in threatened litigation, what the company can "win," and the cost of such litigation. One other factor should also be considered - whether the demand letter will result in retaliation liability for the company. The Colorado federal district court recently held that such post-employment actions by the company may be deemed retaliatory, creating Title VII liability for the employer. Hertz v. Luzenac Amer., Inc., Civil Case No. 04-cv-01961-LTB-CBS (D. Colo. Nov. 29, 2010).
After Hertz's separation from Luzenac, he accepted an employment offer from a competitor. Convinced that Hertz was using Luzenac's confidential business information, a Luzenac executive sent an e-mail message to Hertz's new business, asserting that Hertz was using data stolen from Luzenac to improperly inform/advise the market. Further, Luzenac's counsel sent a cease-and-desist letter to Hertz's lawyer, and copied Hertz's new business, alleging that Hertz was illegally using Luzenac's proprietary business information to compete against his prior employer.
What Luzenac apparently overlooked when taking these post-employment actions was that Hertz - after his separation - had successfully sued Luzenac for religious discrimination and retaliation, in a Title VII lawsuit. In a second suit, Hertz contended that the e-mail message to Hertz's new business and the cease-and-desist letter were retaliation for his filing his initial Title VII case. Judge Babcock agreed that such a theory was viable, holding that the e-mail message and demand letter could support a Title VII retaliation claim. The Court noted that these actions could be viewed as "harmful to the point that they could well dissuade a reasonable worker from making or supporting a charge of discrimination," the standard for a retaliatory action established by the U.S. Supreme Court in Burlington N. & Santa Fe Ry. V. White, 548 U.S. 53, 57 (2006).
Paradoxically, the Court rejected another retaliation theory urged by Hertz - that Luzenac also retaliated against him by raising frivolous counterclaims in court against him in a trade secrets case. After the e-mail message and the cease-and-desist letter, summarized above, Hertz filed a lawsuit seeking a declaration that he had not misappropriated trade secrets. Under the Federal Rules of Civil Procedure, Luzenac was then required to raise counterclaims it had against Hertz. Hertz's theory was that Luzenac's counterclaims were baseless, and therefore, retaliatory. Judge Babcock disagreed, ruling that Luzenac's allegedly frivolous counterclaims were not retaliatory, under Title VII, because (a) Hertz effectively brought the counterclaims on himself by bringing the trade secret lawsuit (the counterclaims would have been lost if not raised by Luzenac), and because (b) in the context of the trade secrets lawsuit, Hertz was not acting as an employee or a former employee, as required by Title VII.