Business Litigation Session Holds That Memorized Information Derived From Employment Can Violate Confidential Information And Non-Solicitation Clauses

In a novel recent decision, the Business Litigation Session of the Superior Court of Massachusetts held that a financial consultant who had left his job and then allegedly prepared a list of his old firm’s clients entirely from memory on his first day with his new employer had violated the non-solicitation and confidential information provisions in his employment agreement with the former employer.

In Fidelity Brokerage Services LLC v Callinan, the Defendant had joined Fidelity Brokerage Services directly out of college and worked for the firm for a period of more than a decade before abruptly announcing his resignation in the summer of 2018.  The Defendant periodically signed employment agreements with Fidelity, the most recent of which included a section that provided that during a period of one year after his separation from the company, the Defendant would neither use any confidential information in order to solicit any customer or prospective customer of Fidelity, or otherwise “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.”

On the first morning of his new employment with a competitor, the Defendant prepared a lengthy, detailed list of Fidelity clients from memory, and provided that list to his new bosses, who proceeded to track down contact information for each client on that list.  The Defendant subsequently contacted many of his former clients at Fidelity, purportedly for the sole purpose of providing the clients with the information that he had left Fidelity and to give those clients his new contact information, unless a client asked for more details.  If the client did ask for more details, among the things that the Defendant stated in response was that he believed his new employer had a broader menu of investment options and he would be able to provide more personalized services than in his old position with Fidelity.

Fidelity moved for a preliminary injunction to prevent the Defendant and his new employer from undertaking any further persuasive efforts aimed at Fidelity customers during the period of the Defendant’s one-year confidentiality and non-solicitation obligations.  The Defendant and his new employer argued that the information Defendant “retained in his memory regarding the identity of his former Fidelity clients is not confidential and, therefore, that their use of such information to reach out to those clients following [his] departure is not prohibited by the terms of his Employment Agreement.”

The Court rejected that argument.  First, the Court noted that the non-solicitation clause uniformly prevented the Defendant from contacting any former Fidelity clients within a year of his departure.  Second, the Court stated that the definition of Confidential Information to include “information pertaining to the business of any of the Fidelity Companies that is not generally known to the public,” including “customer, prospect, vendor and personnel lists” was critical.  Defendant did not dispute that the identity of Fidelity customers was not publicly available or that he had learned the identity of those customers through his employment.  Therefore, the Court held that the identity of Defendant’s former Fidelity clients fell squarely within the definition of “Confidential Information”, and the “result [was] not changed by the fact [Defendant] walked out of Fidelity’s offices with the names of most, if not all, of his former clients stored only in his memory, as opposed to written on a piece of paper or saved to a computer flash drive.”

The Court proceeded to find that a preliminary injunction should issue, as Fidelity was likely to succeed on the merits of its breach of contract claims and there was a substantial risk of irreparable harm to Fidelity, which greatly outweighed any potential harm to Defendant and his new employer.

Fidelity Brokerage Services LLC v Callinan offers an added layer of protection to employers that have well-drafted confidential information and non-solicitation agreements with employees exposed to confidential information.

Fitch Law Partners will continue to monitor developments in this area of the law.  For more information on Fitch Law Partners’ employment law practice, please visit our website or contact one of our attorneys.

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