The uproar over the recent op-ed piece by former Goldman Sachs derivatives trader Greg Smith in The New York Times has drawn attention to the special challenges of dealing with current or former employees who believe that they are whistleblowers.  I have written before about the unique risks presented by whistleblowers like WikiLeaks, anonymous bloggers who post confidential information over the Internet, and former employees like Bruce Gabbard, who accused Wal-Mart of spying on media and other critics.  A situation, however, that I have not covered yet is the one where an employee gathers trade secrets or confidential information in support of claims that he or she may have against his or her employer, individually or as a part of a class action. 

In these settings, an employer’s efforts to restrict dissemination may backfire in the form of bad publicity, a claim of retaliation, or reinforce the employee’s bona fides as a whistleblower in the eyes of the workforce, a court or the media following the dispute.  Not surprisingly, there are federal and state statutes that protect employees from retaliation for opposing unlawful practices or participating in litigation over those unlawful practices. 

A company should not underestimate the powerful tradition romanticizing whistleblowers in our history — think Ida Tarbell and Standard Oil, Upton Sinclair and the meat packing industry, Ralph Nader and the Chevrolet Corvair, and Daniel Ellsberg and the Pentagon Papers.  Whistleblower cases, therefore, are by far the most difficult cases to manage because the company is invariably going to qualify as the villain in this narrative and efforts to set the record straight may be perceived as retaliatory smears.  Alternatively, in some situations, communicating with the media may lead to the “Barbara Streisand Effect” — namely, drawing more attention to the situation and pouring kerosene on what was previously only a smoldering fire.

As we can see, this situation can turn into a real mess.  To the extent that a current (or more likely former) employee is about to publicly divulge important trade secrets or confidential information, an injunction may be the only means of preventing disclosure of the information.  In this litigation, an employee will likely invoke the First Amendment and the public interest (especially if the information in question implicates a matter of public debate or safety).  Federal courts are particularly sensitive (arguably overly so) to these arguments, so you need to select your battle and forum wisely and be prepared to fend off these issues with a strong showing of trade secrecy.
Another common whistleblower situation may arise in existing litigation, where an employee is already in a full-blown dispute with his or her employer (frequently a discrimination case) and decides to copy, misappropriate or steal documents to support his or her claims.  A frequent question is to what extent an employer can discipline or terminate the employee for violating its rules and what are the consequences within that litigation. 

As one might suspect, there is no bright-line rule.  Fortuntely, several federal courts have been reluctant to endorse this behavior and have looked at many factors to determine whether retaliation has in fact taken place.  These courts have focused on the circumstances of the copying (did the employee rifle through a supervisor’s desk or was it left on a copier?), what the employee did with the documents (simply share it with his/her lawyer or give it to other employees or to the media?), the safeguards that the employer undertook (are there policies and agreements that prohibited the copying and disclosure?), the relevance of the information to the employee’s claims, and the interests of the employer (how sensitive is the information? Does it include trade secrets? How disruptive is its disclosure to the employer’s business?).  

If there are genuine trade secrets and an employer has taken the right steps to protect them (clear policies, written agreements), the employer should be in a better position to defend any discipline or termination decision that follows the improper copying and use of that information.  Of course, any legal analysis involving this many factors hardly provides the certainty most employers would like in these situations. 

For those looking for more detail, please check out the excellent article written by Kevin O’Connor of Pecker & Abramson for the American Bar Association’s Litigation Section; it provides a good summary of the law in this area. Also, Seyfarth Shaw’s Trade Secrets Group is providing a webinar tomorrow on this topic for this interested in learning more (I hope to participate, schedule permitting).

What can an employer do?  Tread carefully.  If you are not in litigation yet but you feel your trade secrets are genuinely at risk, be prepared to preempt any disclosure and file first to frame the issue and prevent disclosure.  If you are already in litigation, monitor the employee appropriately, ensure that your policies and agreements are in place, and be prepared to face a bruising battle if the employee decides to start gathering and using confidential documents against you.