In Hill v. Names & Addresses, Inc., an employer was awarded damages for lost profits as a result of its former employee’s use of confidential client information to steer clients to her new employer.
Names & Addresses, Inc. (“NAI”) maintains mailing lists and rents the lists to its customers, who use the lists for direct mail marketing. Plaintiff, Sherylyn Hill (“Hill”), who was an account executive and list broker at NAI, entered into an employment agreement with NAI which provided she would not sell any services or products similar to those sold by NAI to anyone who was its customer during her employment and for two years following the termination of her employment.
After several years of employment with NAI, Hill resigned and began to work with one of NAI’s competitors, Greenfield Direct Response, Inc. (“GDR”). Prior to her resignation, Hill removed reports from NAI’s computer system which contained confidential client information and used such information to encourage six of NAI’s clients to switch their business to GDR.
Hill subsequently filed suit against NAI seeking a determination that the covenant in her employment agreement was unenforceable. In addition, Hill sought payment of commissions allegedly owed to her. NAI filed a counterclaim against Hill alleging that she breached her duty of loyalty and breached the covenant in her employment agreement by taking a job with GDR. NAI also filed suit against GDR for wrongfully interfering with the contractual relationship between Hill and NAI.
The court found that Hill, assisted by GDR, breached her duty of loyalty to NAI by taking confidential client information and causing six of NAI’s customers to switch their business to GDR. In making this finding, the court relied upon evidence which indicated that, prior to her resignation, Hill had contacted six of NAI’S clients to advise them of her resignation from NAI and suggested that they switch their business to GDR. The court also relied upon Hill’s own testimony that she had removed a computer disk which contained client information. The court held that as a result of her breach of her duty of loyalty, she forfeited her claim to commissions due at the time of her termination of employment with NAI.
The court also found that the proper measure of damages to NAI would be NAI’s lost profits since Hill’s purpose in misappropriating NAI’s confidential information was to divert NAI’s business opportunities. The court pointed out the amount of lost profits should not be reduced by overhead expenses since the profits wrongfully made by GDR were not generated from Hill’s efforts as a list broker with GDR.
This case describes the remedies available to employers against employees who misuse confidential information to divert business to a new employer. As in Hill, such employees will be deemed to have forfeited any claims to any past due commissions and will be required to compensate their employers for lost profits sustained as a result of their (mis)conduct.