Can Accusing a Former Employee of Stealing Trade Secrets Be Unlawful Retaliation?

03 January 2011 Labor & Employment Law Perspectives Blog

Employers can be subject to lawsuits for actions they take after an employee leaves their employment. Luzenac American fired Sanford Lee Hertz in January 1998. Shortly after his termination, Mr. Hertz sued Luzenac for religious discrimination and retaliation in connection with the firing. The case went to trial and a jury returned a verdict in favor of Mr. Hertz.

While the case was on appeal, Mr. Hertz entered into a consulting agreement with IMI Fabi to help it manufacture and market a product to compete with a Luzenac product. Once Luzenac got the news, it sent a letter to Mr. Hertz demanding he stop misappropriating its trade secrets. Luzenac’s counsel sent a cease-and-desist letter to Mr. Hertz’s counsel, copying IMI Fabi, alleging that Mr. Hertz was illegally using Luzenac’s proprietary information to compete against it.

In response to the cease-and-desist letter, Mr. Hertz filed a lawsuit seeking a judgment that he had not misappropriated trade secrets and that Luzenac’s accusations were made just to retaliate against him for pursuing his employment discrimination claim. Luzenac filed counterclaims saying Mr. Hertz had stolen trade secrets and interfered with its business. It later filed a motion asking the judge to throw out Mr. Hertz’s retaliation claim because protecting trade secrets cannot be viewed as an adverse, retaliatory employment action. Last month, a United States District Court judge in Colorado ruled that Mr. Hertz can go to trial on this claim of retaliation.

The court ruled that Luzenac’s e-mail to IMI Fabi stating that Mr. Hertz was using stolen property and the lawyer’s cease-and-desist letter could be retaliatory. It said both the e-mail and letter might have dissuaded a reasonable employee from “supporting a charge of discrimination.” Because the e-mail and letter were sent while Mr. Hertz’s initial discrimination case was pending, a reasonable jury could find it to be a materially adverse action supporting a claim for unlawful retaliation.

The court ruled, however, that Luzenac’s filing the counterclaim could not support a retaliation claim because in that situation Mr. Hertz was in the position of an improper competitor — as opposed to an employee. The court reasoned:

The filing of the counterclaims clearly would not have served to dissuade Hertz — or any other reasonable person in his position — from continuing to support or pursue his discrimination claim… . I agree with Hertz that the act of filing a counterclaim could under different circumstances constitute an adverse action in support of a retaliation claim. But in this case Hertz is not in the posture of an employee or even a former employee, but rather is a plaintiff in a case that is fundamentally about whether or not he misappropriated trade secrets.

The court recognized that once people leave their employment, there are still adverse actions that can be taken that would be considered retaliatory. Even protecting your proprietary interest might get you in trouble if you are not careful. The lesson: Before sending off a cease-and-desist e-mail or letter to a former employee who brought employment claims, make sure you have a good factual basis for doing so.

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