On demand 1h 3m 13s Basic

Managing Actual, Suspected, or Threatened Trade Secret Misappropriation

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Managing Actual, Suspected, or Threatened Trade Secret Misappropriation

Employee departures represent one of the most significant risks to an employer’s trade secrets. When an employee leaves, any information that leaves with them may be lost forever. But it’s not just the trade secret owner whose information is at risk. The new employer risks contamination of its work product by the use of another party’s trade secrets. In this course, Russell Beck will provide a quick refresher of trade secret law and then discuss the risks created by employee departures and how to think about – and protect against – those risks from all perspectives: the perspective of the former employer, the employee, and the new employer.

Transcript

Hello and welcome to managing actual suspected or threatened trade secret misappropriation. My name is Russell Beck. I'm a trade secret non-compete and employee mobility lawyer at the law firm Beck Reed Riden. In today's program, we're going to take a look from multiple perspectives about how to handle when an employee moves from one company to another and may or may not have taken confidential information with them. Let's take a look at our agenda. We have five topics that we're going to cover. First. What's the problem we're actually talking about? And why is it really a problem? Second, we'll do a quick refresher on trade secret law. It will cover what we talked about in prior programs, But I will leave it to you to go back to those programs if you're looking for more detailed information about trade, secret law. Third, we'll talk about the warning signs of possible misappropriation. Fourth, we'll talk about the strategy for addressing these problems when they actually arise. We'll look at it from the perspective of the former employer and then from the other perspective, which is really that of both the employee and the new employer. And then fifth, I'll provide some takeaways. So with that, let's turn to what the problem is. To do that, I'm going to give you a few examples. First. Imagine that you just completed the development of a secret formula for a new product. Maybe it's a new soft drink. Your lead chemist who led the product development leaves for a competitor. After they leave, you discover that they accessed files containing top secret information about the product, including the product formula, information about the ingredient suppliers, which is not known outside the company, and additional information about the product. They're headed to a competitor. What are you going to do to stop them? Let me give you another scenario. Imagine that your company just finished developing a top secret killer marketing strategy for the next three months, six months and one year. It has detailed plans for how it's going to roll out and how it's going to jump your company ahead of your key competitors. You've now launched the plan. The following week, after you've launched it, your chief marketing officer, the one responsible for developing that entire plan, leaves for one of your key competitors to be their CMO. How are they going to do that job without using the information in your marketing plan? They probably can't. What are you going to do about it? The third example is one of your top sales employees who maybe has been disgruntled lately. Imagine that they are the main contact for some of your key customers. They know all the details about the customer from the customer identity, which isn't generally known and very hard to find out who the potential customers are. They know the contacts that the customers. They know the customers purchase histories. They know the markups. They know the profit margins. They know everything about the sale process to each of the customers that they are responsible for and the customers that they are responsible for are the critical customers for your company. Imagine next that they tell you that they're leaving, but they refuse to tell you where they're going. Now imagine that a week later, one of the key customers cancels a huge order. It might even be the case that you then receive an email from one of those key customers that was intended to go to the former employee at their new employer, but it was misdirected to their old email address. And it strongly suggests that they've used company information about the customer to undercut you in the next big sale. What are you going to do? These are the problems that we deal with on a regular basis. These are the problems that trade secret law and also restrictive covenant law is designed to protect against. So let's take a look at how we manage through this process from all perspectives, from the perspective of the former employer, as well as from the perspective of the employee and their new employer. But before we do that, let's take a quick refresher on trade secret law. You may remember from the last program that trade secrets are information that's secret and that the company has taken reasonable measures to protect its secret and that have value as a consequence of their secrecy. Any information can be a trade secret. There really are no limits. It can be anything from the secret formula for a new sports drink to the secret marketing plan for a company to the information concerning customers. It can be anything, any information that can be used by a business and that can give the business a competitive or economic advantage can be a trade secret. Now, certain things can't be a trade secret, and it's very easy to identify what they are, very hard to actually put it in practice. But let's take a quick look and then you can go back to the prior program If you're interested in spending a little more time trying to understand the concepts. But at a very high level, general skill and knowledge information that's been publicly disclosed and industry know how are all information that's outside the scope of what a trade secret can be. One concept that I think creates a lot of confusion that I think is worth just touching on is that trade secrets can include information that's publicly disclosed, but that's compiled in a way that makes it a trade secret. In other words, it's been aggregated from publicly available information through some sort of process that distills the. Rmation from the public and then gives that information, new secrecy and new value as a consequence of not being known by others in the industry or others who could derive value from it. So customer lists are a perfect example. Imagine that you have a customer list that you've created by searching publicly available information. But those searches and then the culling and figuring out which of the universe of potential customers is actually a real potential customer, whether they might actually be interested, what their threshold is for working with you or with a competitor. And that information gives you a competitive advantage and is information that now is not publicly known or not known generally in the industry that can give you a competitive advantage. A specific example of a way to think about that type of information is imagine that your financial services company and you provide investment advice. Well, you can provide that to literally any adult living in the United States. And how is it that you're going to determine who among the adult population in the United States might be interested in working with you? You do that through a process that takes a long time and a heavy investment in the development of all of those names and the development of relationships with those people such that they are willing to work with you. So that information, once you know who that list of people is, well, that list then can become a trade secret, even though it's all information that was initially derived from public sources. So with that aside, that's what trade secrets are. Now, what's trade? Secret misappropriation. Again, we discussed this in our last program, so I'm not going to get deeply into it here. However, the concept of misappropriation is basically that someone has wrongfully acquired, used or disclosed trade secrets of someone else. I won't go into more detail beyond that other than to remember this comes up very frequently in the context of employees who have moved from one company to a competitor, and that's what we're going to focus on in today's program. So with that, let's turn to what are the warning signs? Let's take a look. So from the employees perspective, there really aren't a lot of warning signs. The employee knows what they're doing. They know that they're taking information or not taking information. And so generally, we don't really think about warning signs for them. However, they really do need to be trained. Again, going back to our prior program, they really do need to be trained about what's proper conduct and what's improper conduct. Quite often employees don't realize that they're engaging in conduct that is improper and that they would be violating trade secret laws as well as maybe their contractual obligations to their current employer. So training the employees to be aware of that is critically important to prevent the employee from taking information inadvertently. Now, once we move off of the employees perspective, we then look at the new employer's perspective. And if you think about this from a timeline, the way this would generally arise is that the employee is decided that they're going to leave. They start exploring leaving. Now, in the context of that, they may have taken some information or may not. Maybe they started thinking about it. Maybe they haven't done anything yet. But they're the ones that kind of start this timeline running. We then turn to the new employer, and the new employer now is going to be interacting with the employee, perhaps before the employee even affirmatively took steps to take any information. And so the new employer needs to be cognizant that anything that the employee may discuss with them is information that could be confidential. And so new employers need to be paying attention to whether the employee is potentially going to share confidential information with the new employer. Now, that sometimes comes up in the context of interviews and especially interviews that are being done over Zoom, where it's very easy for an employee to pull something up on their computer and then screen share it with the new employer. So people at the new employer need to be trained to understand that as they're doing their recruiting and as they're interviewing candidates, they need to make sure that they are paying attention to what the what type of information the employee is sharing and to make sure that that information that's being shared does not include anything confidential. And if the employee starts to identify confidential information that needs to be nipped in the bud, the employee can not do that. And it's a problem not just for the employee, but the new employer. So the new employer really needs to be paying attention and make sure that they are not accepting intentionally or inadvertently any confidential information of the prior employer. And then we get to the soon to be former employer. From their perspective, everything is going along as usual. There's no reason to suspect that an employee is going to be leaving or there may or may not be reason to expect an employee is going to be leaving. So the soon to be former employer's perspective is very different from the others. Their perspective is they have no knowledge of what's going on or likely have no knowledge of what's going on. And because they typically won't know what the employee is planning on doing, they just need to be aware of. Of some of the common warning signs. So let me give you some examples of common warning signs that employers might see and that might indicate an increased risk of misappropriation. First, it's not uncommon for employees who are planning to take information to start changing their working habits. Maybe they work at different hours. Maybe they suddenly start hiding what's on their calendar. Maybe they start isolating themselves from their team. Maybe they become less responsive or have a sudden interest in a different area of the business that they have no reason to be involved with. Another warning sign is when employees start accessing different areas of the network that they don't have a reason to be accessing or information that they don't have a reason to be accessing. And in a similar vein, they may also start copying or transferring large amounts of data that they normally wouldn't transfer or don't normally have a need to transfer. So you need to look in the context of what the employee generally does in order to determine whether this information or this access or these transfers are normal for them in the ordinary course of their work, or is something new. Also, in order to monitor for that, some companies have software that's called DLP software or data loss protection software or data loss prevention software. That type of software is very helpful and it is becoming much more of a norm for companies. And at some point I think we can expect that courts will expect that companies will have that software in place to monitor for this type of conduct. Another example of a warning sign is excessive print jobs so companies can monitor print jobs depending upon where they're done and whether they're done through the network or on certain devices. But one of the current problems that companies face at this point is that so many employees work from home and then have their own printers that printing something doesn't necessarily get captured in a print log. However, there is software that allows companies to do that, and that may be something that a company wants to consider if printing trade secrets is a risk for that company. Another yellow flag is a decline in work performance or engagement at work. That type of conduct often indicates that someone is disgruntled, and it may be an indicator that they're thinking about leaving. And when employees are thinking about leaving and they're disgruntled, that is not uncommon for them to take information at that point. Another warning sign and one that the FBI actually identifies is an unexpected change in financial circumstances. So you imagine that your employee all of a sudden starts to be living a lifestyle that is in excess of what their salary justifies. Now, maybe they've come into money through some other source, but on the other hand, maybe they've been paid some money in order to transfer data to another company. That is something that does happen and it is something to be aware of. A few other warning signs to be aware of are the unauthorized installation of software. For example, something like Ccleaner. That software that actually will wipe information off of a computer and companies should probably be monitoring for that. Some other warning signs might include a sudden resignation or the improper use of social media, such as sharing confidential information or engaging in conversations with competitors or vendors that they shouldn't be engaging with, maybe having existing relationships or new relationships with competitors or vendors or others. One way that might come up, for example, is the spouse. Perhaps a spouse works for a competitor. Well, that can raise some very difficult issues for companies on both sides. So now that we've got some of the warning flags, let's take a look at what the strategy is for both sides. And we're going to look at this along the timeline. We're going to look at it initially from before the employee leaves and then we'll pick up after the employee leaves. But I'm separating the two timeframes because I think that they are very different timeframes. And I think that there are opportunities for employees before they leave to do things that after they leave might present a problem. And I also think they just raised different concerns from all sides. So with that, let's turn to the employees perspective now. They they again, are the the first line on this, because the employee is the one who is making a decision about what information they're going to take with them and what information they're not going to take with them. They'll be the ones who, when they're talking with a potential new employer, will be either revealing information or not revealing information. So it's critically important that the employee be cognizant that they are allowed to take certain information that is information about themselves, but they are not allowed to take a company's confidential information, period. Now, there are certain circumstances where that's not true. For example, if they're going to be a whistleblower, but there are very specific requirements for when an employee can do that. So the general approach to this is to really be very clear that you don't take any information when you're departing. If you want any information, you can certainly ask, but you shouldn't take it without authorization. So with that, let's take a look at some of the specifics. Employees should initially review all policies and agreements to ensure that they're complying with their obligations. Now, those obligations under their agreements may last not just during the term of their employment, but afterward. And so they really need to make sure that whatever they're doing now doesn't have implications for after employment. That might be a trigger for a violation of their contractual obligations. Policies are a bit different. Policies apply during the course of employment. They don't typically apply after employment, but that does mean that the employee during employment needs to be in compliance with those policies. And those policies often will include things like confidentiality policies, information technology policies, codes of conduct and others. The employee also should check their personal devices and their personal accounts to figure out what information they may have, why they have it, and when they took it or when they acquired it. And the reason for that is that if an employee took information or acquired information in the ordinary course of business, that's generally fine. It may be that it's perfectly appropriate for the employee to move information onto a personal hard drive or a personal thumb drive and then use that information for the company, but not then keep it after they leave. Now, that's very different from an employee who does exactly the same thing, except the intent is not to use it for their company, but instead to take it with them when they leave. So they take that information and anticipation of leaving. Those are two very different circumstances. So the employee wants to figure out what is it that they have before they leave and what the circumstances were of its acquisition. And that means that they can't rely on their memory. They really should look at their mobile devices and that includes their cell phone tablets and anything else they may have. They should be looking at storage devices and that includes the thumb drives that get lost all the time. But they really need to be accounted for if they've been used on the computer, USB hard drives for backup or whatever else they may be used for network attached storage that they may have at their house and then any any other devices that they may have put information on. They also need to look at backup and storage accounts like iCloud or Dropbox. Those are very common. There are lots of others. They need to look at their email accounts again, their personal email accounts, and make sure that any information that's been sent there, they figure out what they have. Now, it doesn't necessarily mean that they deleted at this point. They may want to work with the company to figure out how to go about deleting all that information. But that becomes a much more nuanced analysis. Same thing for social media accounts. Do they use social media accounts for work at all? Have they disclosed anything on social media accounts? Do they have connections on social media accounts with clients that they shouldn't have connections with after they leave? Because that may constitute taking information from the company after the employee has figured out what information they have, they really then need to figure out whether they need to return or delete it. 1st May be appropriate, the other may not be. But any information that they've obtained through their employment should not be taken with them when they leave. That may require that they have a conversation with their supervisor, maybe with HR or human resources, maybe with information technology, the legal department or other departments for that matter. So they need to figure out who they should be talking to, and that may be informed by their role with the company and who they report to and how the company is set up. But at the end of the day, they should take nothing when they leave. Zero. Anything that they have with them when they leave is fodder for a former employer to claim that the employee misappropriated trade secrets on their exit. That is something to avoid. Now, it may be as simple as trying to communicate with the employer, and the employer is non-responsive and the employee leaves with information still in their possession. That's on the former employer. As a general matter, the employer has the obligation to work with the employee to make sure that all that information has been returned or deleted. But it's the employee who knows that they have it, and therefore it's incumbent upon the employee to at least identify the problem and figure out a plan for addressing it. Another thing that the employee should be very cognizant of is being professional and cooperative. And that means if they are asked to participate in an exit interview, they do so and they should not under any circumstances lie. Lying will show up in the first paragraph of a complaint seeking injunctive relief or an order from a court against the employee and potentially the new employer. So do not lie. That is critically important. And that also includes do not make misstatements that aren't direct lies, but are very suggestive of false facts. Lies by omission. Bad idea. You've just got to be, as an employee, very candid with the employer. It doesn't mean you need to be forthcoming. But absent unique circumstances such as you're going to a startup that is top secret or you're going to do something that is otherwise top secret and really can't be shared with the former employer. Absent circumstances like that, it is 99 times out of 100 going to be the right approach to be more candid with the employer. Again, not necessarily volunteering information, but if asked or if circumstances require disclosing what your plans are and certainly not lying about anything that you've done or planning on doing. And in a similar vein, don't burn bridges. There's no reason for an employee to burn bridges on their way out the door. All that's going to do is make it far more likely that an employer is going to sue them. I have seen many employees leave on good terms and I've seen employees who have taken information, but the company really likes them and they work with the employee to get that information back and to remove it from the employee's possession. And I've seen employees who companies don't like who have done exactly the same thing or less and still get threatened or sued by the former employer. So leave on as good terms as possible and make it clear that that's what you want to do. And finally, if the employee has taken information for an improper purpose, meaning they were planning on taking it with them when they leave for use at their new employer, or if they know that litigation is possible, they really need to not touch any of that information because doing so may actually alter the metadata and it may look like they've been looking at the document and using the document or the information later than they really were. So if this is the circumstance that an employee finds themselves in, they really should go talk to a lawyer. And if they can't afford a lawyer, they should look into legal aid or at least talk to their new employer about what to do or the potential new employer about what to do. So that's the employees perspective. Now let's turn to the new employer's perspective. Again, thinking about this from the framework of an employee is the first one to know what they're doing. And then the new employer or prospective new employer is most likely to be the second. And finally, the soon to be former employer or the former employer is the next one to know. Typically, that's the way it happens. So the new employer's perspective is actually fairly easy. They just need to make sure that they don't receive any confidential information from the former employer through the employee. Very simple. Now, it's not to say that it doesn't happen, because it certainly does at times. But companies really need to make sure that their talent acquisition staff and anybody who's involved in the interview process is aware of the risk of taking information and knows the steps to take to make sure to avoid either receiving the information or to take remedial steps if the information has already been conveyed and couldn't be stopped. One of the issues that might come up for a new employer is a candidate may ask the new employer to indemnify them in connection with any potential claim that the former employer might make against them. Now, that's not uncommon for employees, especially higher level employees, to ask for, and companies vary on what they're willing to do. Some companies are willing to pay the legal fees maybe up to a certain amount or maybe in some proportion with the employee. Some companies are willing to pay all of the attorneys fees no matter what the amount is. Some companies are willing to even pay for the employee to sit on the sidelines if a court orders that they have to be out for a year or so. Other companies will do nothing. Other companies don't want to be involved in that side of the process and are very content to move on to their second person on the list rather than get themselves mixed up in a potential lawsuit. It really does depend. It depends on the employee and their value to the new employer. It depends on who the new employer is and what their general approach to these things is. And it often depends on how the former employer is likely to respond. And then it's also often impacted by what law will apply. Some states would view any sort of indemnification as tortious interference or in other words, the improper interference with the employee's contract with their former employer. Whereas other states would say that it's perfectly fine as long as the indemnification is to protect the employee in the context of trying to move jobs, but not to violate their obligations to their former employer. And then that brings us to the former employer. So you may remember from the last program that we talked about an exit checklist and we went through in that context what an exit checklist would look like. We're going to take a slightly different approach now in this context where we're looking at how to manage the trade secret misappropriation, whether it's actual misappropriation, suspected misappropriation or threatened misappropriation. So if you watch the last program, you'll remember that there are five steps to the exit checklist to conduct an exit interview, turn off all access of the employee, monitor computers and servers for odd usage patterns. Consider whether to send a cease and desist letter and consider whether to file a lawsuit. Now, the reason that the first two are reflected in a different color from the last three is that the first two are still in this preliminary stage of the employee departure, meaning the employee hasn't left yet. So let's take a closer look at those first two steps in the exit checklist. First, conduct an exit interview. So what does that look like? The exit interview that people are typically familiar with is when HR asks the employee what areas of improvement are there for the company? What would you recommend the company do in order to make this a better place for other employees? That's not what we're focused on in the context of trade. Secret misappropriation. That is certainly fine to do. Companies can feel free to do that. But what we're focused on is in the context of preventing misappropriation. So those steps include the following reminding employees to return and not retain company information or property. And it's critically important that in the context of explaining that to employees, companies need to make clear what they're talking about when they talk about company property or information. Oftentimes what employees will think is that the company is talking about really valuable, high level stuff that they don't have access to without realizing that actually the company is talking about all information and all property. Any information that is in any way conceivably a trade, secret or other confidential information of the company. That's what the company should be telling the employee. You don't want an employee to think that they're exercising judgment and get it wrong. So they need to understand that this is black and white. Don't take any information whatsoever. It doesn't matter whether you, the employee, think that it's valuable or not valuable. If it's the company's information, leave it here. Delete it from wherever you've got it. You shouldn't be walking out the door with it. If you do take information, that's a problem. And that's really the message that companies need to provide to their employees. There's really a lot of confusion around this, and the burden is on the company to make clear to the employee what the expectations are so that the employee can comply. The company should also remind the employee of all agreements and any continuing obligations. So what that means is the employee may have an employment agreement that contains confidentiality obligations. It may also contain non-compete non-solicit, no recruit or other obligations. Those agreements need to be provided to the employee and the obligations need to be clear to the employee. There may also be similar obligations in other agreements. There may be restricted stock awards or option agreements or other equity awards where the employee agreed to take on certain obligations that they may not have had before. So make sure that all of those agreements are identified and provided to the employee and that the employee understands what's required of them when they leave. The employee should also be asked about the identity of any new employer and what the employees anticipated job duties are. And that's really important to make sure that you don't wind up with that circumstance. Like we discussed at the beginning of this program, where your lead chemist or your CMO or your sales person have left and have gone to a competitor and you don't know and you find out only later after they've used your trade secrets. So if it wasn't clear before, in addition to reminding the employee of all of their agreements, you also want to. Make sure to provide copies of them, as well as any reminders in writing. And oftentimes HR departments will provide reminders to employees about maintaining confidentiality and complying with all of their post-employment obligations. So that's something you want to make sure that you do, especially in Oregon. And we'll see if others follow suit. But where you need to provide the employee with a copy of their agreement within 30 days of their departure. So just to be clear, you should provide it during the exit interview and probably under Oregon law, would also need to provide it within 30 days after the employee leaves. Nevertheless, you don't want the employee to say, I had no idea. So you want to make sure that there's no question about what the agreements are and what the obligations are. And that's why you both remind the employee and provide them with copies of whatever may be existing. You also want to confirm that the employee has complied with and intends to comply with all of their existing obligations. Companies will oftentimes include a certification from the employee. In the exit interview in which they ask the employee to certify that they have complied with all their obligations and intend to comply moving forward. It is not improper for an employee to ask for more time in order to review whatever the obligations are and sign the agreement. So it's perfectly appropriate to allow an employee to take a certification home with them and then to review it and bring it back and sign it separate from the exit interview. Soon to be former employers also want to make sure that they have turned off the employees access to everything. You want to make sure that the employee and we're really talking about here is employees who who pose a risk to the company in connection with trade secrets. So that means you want to make sure that you've turned off their email, their voicemail, their access to the server, including any personal drive on the server that the company allows them to use. You want to make sure that access to any outside vendor services is also been discontinued. For example, Salesforce. It is not uncommon for companies to forget to turn off access to Salesforce for sales employees. That creates a lot of potential exposure for the company, for the employee and for the new employer. So it's best to make sure that the employees access to any of those outside vendor services has been completely discontinued. Similarly, make sure to change passwords and disable access cards and also collect or wipe any information that's stored on an employee's smartphones or tablets or iPads, whatever it may be, whether that's through wiping or through taking them back and forensically examining them, whatever the process may be. You want to make sure that you do that before the employee leaves, if at all possible. That way you don't have to worry that the employee has walked out with information. You know, that at the time that they left, they have nothing in their possession and that includes because they haven't had access to it, depending upon the size and nature of the company, it's often not feasible to go through this process for every single employee that leaves. So really what the company needs to do is figure out which employees are going to pose the greatest risk and then calibrate their approach based on the risk posed by each individual employee. So some of the factors that companies look at in order to determine who it is that poses the greatest risk to the company and therefore the employee that the company needs to be most concerned about and to ensure that the company has taken all measures that it can in order to protect itself. So if you look at the Venn diagram on the slide, what you'll see is seven circles. Now there are seven circles there to reflect, seven different topics that the company should be focused on in order to assess the risk that the employee poses. There are seven really, because Microsoft PowerPoint only allows seven circles for this type of a Venn diagram. That being said, all the questions could be shoved into those seven concepts. So with those starting from the top, you want to know whether the answer is yes or no to each of these. The more yeses, the more overlap there will be with the circles and the more risk that the employee will pose. So the first question is, was the employee in a senior or a strategy role, Yes or no? If yes, that person is likely to pose more of a risk to the company than somebody who's not in a senior or strategy role. Next question Was the employee exposed to sensitive trade secrets? And if so, can that information be retained in memory and used elsewhere? Yes or no? If yes, again, all things being equal, that employee will pose a greater risk to the company than someone who doesn't have that type of access. Or the information is not of a nature that can be memorized and used. Next question Were any trade secrets taken, retained or destroyed? And if so, was it intentional? So sometimes, as we talked about already, employees may take or retain information in the ordinary course of their business. They also may destroy information in the ordinary course of the business. So it's not necessarily a bad thing if that happens, but it is if it's unusual and the employee did it intentionally in order to either take the information for their new job or to destroy the information. So the former employer, the soon to be former employer, doesn't have access to it. Next question was the departure sudden, involuntary or in some other way not amicable, or did it occur at a critical juncture? So those are really two separate concepts. The first, that is whether the departure was sudden, involuntary or in some other way, non amicable really goes to the mindset of the employee, whereas the other indicates that the employee wasn't willing to stay on in order to make sure that the company gets past whatever that critical juncture is. So they're related, but they're very different. And if the answer to the to that is yes in either respect, again, that individual, all things being equal, probably poses a greater risk to the company than someone else where that question would have been answered. In the negative. Next question Is the employee going to a competitor? And if so, does the proposed new position at the competitor breach an enforceable non-compete agreement, or did the employee start working for the new employer before the current employment ended? If the answer to that is yes, that obviously presents a particular concern. Next question Did the employee try to conceal their conduct or their plans? Now, this question hits on one of the critical issues, and that is trustworthiness of the employee. This comes up very often in the context of an employee being asked what their plans are, where they're going, and an employee knowing that they typically have no obligation to tell their former employer. And so they think that it's best not to tell their former employer. The reality is it is almost always a mistake to hide that kind of information because it indicates a consciousness of guilt, or at least that's what the former employer will allege to a court if the matter winds up going to court. So if an employee is asked the question, where are you going to work? What are your plans? There are three ways that an employee can answer that. First, they can tell the truth. Second, they can just refuse to answer and tell the employer that they're simply not going to tell them. And third, they can lie and say, Well, I'm not really sure where I'm going. I think I'm going to take some time to find myself on a beach in Hawaii. Now, if they really are going to a beach in Hawaii to find themselves, that's perfectly appropriate. But if they're saying that but they're really going over to a competitor, this type of response will show up everywhere. It'll show up in a cease and desist letter. It'll show up in a letter to the new employer. It will show up in a court filing if the company winds up bringing an action against the employee. So always best to answer honestly if you're the employee and if the employee lies, it's definitely a red flag for the former employer. Next question Is the employee untrustworthy? It's a related but truly separate question. These types of things don't come up in a vacuum. Companies have their sense of employees and typically they will know these are the employees that they can trust and these are the employees who they can't. Now, oftentimes those assessments are wrong. Oftentimes, employers think that somebody can be trusted when in fact, they can't. And oftentimes they think just the opposite, that an employee can't be trusted, but they can. But if an employer has a good sense of the employee and knows that they can't be trusted, that's a critical fact. Now, when all of these questions are answered in the affirmative, that is an employee who typically is going to pose the greatest risk. And it means that the employer needs to be considering what steps they need to take in order to protect themselves. And with that, we've covered the pre departure considerations for the employee and the new employer as well as for the former employer or the soon to be former employer. Now let's turn to the steps to take after the employee leaves, because these are often very different from the steps that are taken before the employee leaves. Now, from a former employer's perspective, they're typically the one that's going to be making these decisions first. So unlike in the other scenario where the employee is the one who makes decisions initially in this scenario, it's typically the former employer who makes the decision first. And that decision is what steps they're going to want to take. And I can't say it enough. Companies need to take a breath, think before they do anything. So they do need to act quickly, but they should not in any way act precipitously. They really need to make sure that they have a good handle on what the risks are and whatever steps they're going to take. They need to make sure that they have a plan. And the plan is initially, hopefully to avoid litigation. But if that doesn't work, then to make sure that they win in litigation, it's not helpful for a company to run into court but not be able to convince a court that it needs the relief that it actually does need. So again, if you're the company, take a breath, assess the situation, and then come up with your plan. So with that in mind, we go back to that exit checklist and now we look at the second set, the three steps identified in pink on the chart. Those are now to monitor computer and servers for odd usage patterns. And remember, this is now after that's already been done before the employee left. We're now continuing to do that after the employee leaves. And the reason is that sometimes employees wind up having access or sometimes employees wind up trying to access something that they normally couldn't access. But for whatever reason, they're able to maybe they have assistance from someone who's still there, maybe someone who's still there is actually accessing information for that departed employee or maybe somebody who's still there, gives that departed employee a username and password and then the company can monitor and see that this existing employee seems to be working at the IP address from the former employee, even though the current employee is in a completely different location. So things like that may show up. So that's why we look at monitoring. Next is to consider whether to send a cease and desist letter and then finally consider whether to file a lawsuit. So now let's. Take a little closer look at each of those. So in terms of monitoring computer and servers for odd or improper usage, we look at things like the former employees email. So for example, oftentimes employees will receive emails that have been misdirected. They were intended to go to the employee at the new employer, but instead wind up going to the employee at the old employer. That's not uncommon. It happens because the email address is auto populated with the former employees email address. So monitoring the former employees email can actually wind up providing evidence of misconduct before you would otherwise even know. Likewise, it's not uncommon for social media accounts to actually be a source of evidence. Sometimes employees post things on social media accounts that indicate that they're engaged in conduct that they never disclosed to the former employer. And where the risk is high enough, the former employer may want to look at any devices that the employee used for work that the company has in its possession, for example, USB or thumb drives, external hard drives and any other devices they may want to look at. What documents have been downloaded or uploaded to the computer or transferred off the computer. They may want to look and see what files have been deleted, altered or copied, and they may want to look at whether the employee accessed Dropbox or Box.com, Google Drive or any of the other FTP sites out there. And finally, they may want to look at what websites the employee visited and what their search history is because that oftentimes will show that employees were looking at how do I take data with me when I leave? How do I cover my tracks if I've taken data with me, all those kinds of things, You'd be shocked at what employees search for. And if the risk is high enough, companies may want to do this. Companies may just want to preserve the devices, meaning stick them in a secure location somewhere in case something happens. But maybe don't go through the process of actually forensically examining them unless there is some actual concern, not just something that may arise and then where the former employer actually decides that there is a problem, they should absolutely be considering the next steps. And that may be sending a cease and desist letter, if that's appropriate. For example, if there's a breach or a likely breach of any restrictive covenants or any other obligations. But remember, this is a very time sensitive matter. And again, companies shouldn't act precipitously, but they should absolutely be moving quickly because they will need to show that to a court if they wind up having to go that route. Which brings us then to the next step, which is should they file a lawsuit. Again, we looked at this in the last program, but it's important to remember that in the context of finding any sort of misappropriation, any sort of actual misappropriation, this is a likely step. Now, it may be less likely where you just suspect that the employee has engaged in misconduct of some sort, or you're concerned that that there's threatened misappropriation from the standpoint of how can they do this new job at the new company without using the former employer's information? But if a lawsuit winds up being necessary, it really needs to be considered very quickly and it needs to be backed up with very concrete evidence. So when a former employer is considering filing a lawsuit, they want to think about the potential causes of action they have against the employee. They want to think about misappropriation of trade secrets. That's going to be the critical one that we're covering now. They also want to think about breach of contract, and that may be a breach of a non-disclosure agreement, which really kind of supports the trade secret misappropriation theory. It's both independent of it and supportive of it. And it may be separate. It may be something like a breach of a non-compete or a non-solicitation agreement or a no recruit agreement. There may be claims for breach of fiduciary duty or in states like New York that recognize the offshoot of that, the faithless servant doctrine. There may be claims under that there may be claims for conversion for any property that was taken, but you may have to, depending upon the state, you may have to demand return of that property before you bring that lawsuit. So that may wind up going into your cease and desist letter. For example, the Computer Fraud and Abuse Act may be implicated. Now it's much less likely to be implicated after the Supreme Court's 2021 decision in Van Buren versus the United States, which basically held that it wouldn't apply in contexts involving employees typically. But it may still apply depending upon the nature of the employees conduct and maybe who else was involved. The company may have claims for corporate rating. Again, that that's one of those things that companies should be thinking about. It's outside the scope of what we're talking about today. It's actually not even a recognized cause of action in a lot of states, but it is something for companies to be thinking about as well as tortious interference. And that may be against both the employee as well as the new employer. So there can be various types of tortious interference claims that might arise in a context like this. And then also they want to think about other claims like an unfair competition claim. In Massachusetts, we have a statute called general Laws, Chapter 93 A, It's basically a mini FTC statute. It basically makes any sort of it makes any sort of unfair or deceptive business practice unlawful. And that would carry with it a remedy of not just damages, but treble damages and attorney's fees. So that's something for the company to be thinking about in determining whether it should be filing a lawsuit or not. Part of the analysis for the company is also who to sue. Oftentimes, companies will sue both the employee and the new employer, but sometimes it makes sense to sue just one of them. Maybe you sue just the former employee. Maybe you sue the new employer. It really depends on the particular circumstances, but it is something for companies to consider. An example of why a former employer might wind up suing both the employee and the new employer is in order to get injunctive relief against both of them, as well as to get a deep pocket, which is typically the reason for bringing in the new employer, because actually, under the rules of court, typically anybody with knowledge of an injunction against an employee would need to comply with that if their conduct would be governed by the order as well. So, for example, the new employer couldn't allow the employee to engage in conduct on behalf of the new employer. That would violate the order, assuming that the new employer knew about the order. On the other hand, you may not want to sue the new employer because the new employer, again with a deep pockets, is more likely to be able to pay for the lawsuit where the employee may be in a position where they really can't afford the best defense. So you may have a strategic advantage in not bringing in the new employer. In addition, if you're representing the former employer and you wind up going into court, you're better off arguing against one lawyer, that is the lawyer for the employee, rather than two lawyers, that is the lawyer for the employee and then the lawyer for the employer, because rest assured that if the employee's lawyer forgot something or didn't argue it, well, the new employer's lawyer will pick up on that in most cases and fix it. So for those reasons, companies really need to assess who they're going to sue and what claims they're going to bring. If they are going to bring a lawsuit, they really need to be thinking about the evidentiary requirements, what defenses the other side will have and what the counterclaims may be. And then they need to marshal all their evidence in support of their claims and in opposition to any allegations that may be made by the other side. Companies need to be identifying their witnesses, both fact and expert, before they bring a lawsuit. They need to line up a bonding company because typically you cannot get an injunction without posting a bond that is potentially waivable, depending upon what jurisdiction you're in and who the judge is and what your contracts say. But as a general matter, lining up a bonding company becomes very important early on because the injunction, at least in theory, isn't effective until the bond is posted. Companies should also consider whether a criminal complaint is appropriate. Sometimes the issues are so significant and the time frame for a company to respond is so limited that they do need the assistance of the authorities. And that may mean going to the FBI or to the DOJ, the Department of Justice, and asking for their assistance under the Economic Espionage Act or some other state or federal law. And finally, companies need to consider the procedural issues. Are they going to be in state court? Are they going to be in federal court? Are they going to be in the particular states business litigation session? If they have one, where are they going to be? Where is venue appropriate? Who can be sued and what venue? And any other questions that may arise as a consequence of venue choices and who's subject to personal jurisdiction. So that's in a nutshell what the former employer needs to be looking at and needs to be considering. But now we turn to the new employers. Perspective. And remember, again, we're doing this in the reverse order of the way we looked at it before the employee left. And the reason is that the sequencing typically is the former employer is the first one to make a decision about how to move forward typically, and then the new employer and the employee will frequently get that information either simultaneously or one slightly ahead of the other. So let's take a look now at the new employer's perspective. And the new employer needs to be thinking about, okay, is this employee worth the hassle? Right. So if you're the new employer, you've got several options. You can decide, I'm going to stand behind this employee no matter what happens, or maybe I'm going to stand behind this employee for some amount of time and we'll see how things play out. And maybe at the end of the day, say, you know what, employee, it was great having you here, but I'm going to need to let you go. That's one option. Another option is that the employer may fully stand behind the employee throughout the entire process. Another option is that the employer may just decide, hey, we're going to go with our second choice and let the employee go right at that time. So really, the new employer's options range from anywhere from standing behind the employee through the end to letting the employee go immediately. But the new employer may actually have obligations to the former employer if any information is made its way over to the new employer. And that will typically also inform whether the new employer stands behind the employee or not. Okay. So that's the new employer's perspective. Now let's take a look at the employees perspective. So from the employees perspective, they want to make sure that they have literally zero information of their former employer. They want to make sure that as they've as they've departed and now now that they're gone, they have no information with them. They didn't take anything from their former employer. They want to make sure that they don't load any information of the prior employer onto the new employer systems or devices. They want to make sure not to disclose any information from the prior employer to the new employer and not use any information from the prior employer for anything not just limited to the new employer, but for anything. And they want to make sure not to use any information from their former employer. Now, if the employee receives a cease and desist letter or a lawsuit, they need to make sure that they have reviewed everything. So whatever it is that they get, which is typically going to be a letter and maybe whatever agreements they signed, if it's a cease and desist letter context, if it's the context of a lawsuit, then it's going to involve a lot more materials. It will typically be the complaint, the summons, a motion of some sort, whether that's a motion for a t.r.o, a preliminary injunction, maybe there's a motion for expedited discovery, and then there will be affidavits and briefs for all of that. So they want to make sure that they reviewed everything. They also want to immediately contact a lawyer. This is not a time for an employee to wait. Typically, the deadlines on these things are all very quick, so the employee needs to immediate shortly contact a lawyer if they're in a position to do that. And if they can't afford a lawyer, then they should look into legal aid and whether they can get somebody there for assistance or maybe they talk to their new employer who, by the way, may already know what's happening. So a coordinated defense tends to be the best approach as a general matter. But remember, if you're representing the employee, the employee may, in fact, wind up being at odds at this point with the new employer because the new employer may be tossing them aside. So it's really important to figure out whether the interests are going to be aligned or not. From the employees perspective, they should not be responding to anything until they have a lawyer, if that's at all possible. And the employee also needs to make sure that they don't touch anything. Again, the first instinct of employees is frequently to say, Oh boy, I've been caught, I better go look and see what I have. And sometimes it's even I better delete it. All of that just makes matters worse. They really need to avoid doing that. They do need to gather all of their agreements with their former employer to the extent that they're not attached to the cease and desist letter and or the lawsuit. And they need to make sure that they've reviewed all those obligations and they still shouldn't be burning any bridges at this point. Don't trash talk the employer to clients or anyone else. This is a time just to be in lockdown and make sure that everything is done properly with advice of counsel. So let me take a minute just to talk a little bit about the strategy of the employee and the former employer working together, assuming that their interests are aligned. In my experience, just because a cease and desist letter has been sent doesn't mean that the parties can't work together in a somewhat amicable way to negotiate a resolution. In my experience, most situations can actually be resolved without the need for judicial intervention, and I'd say that that's probably more than 90% of the matters that come to us can be resolved in that way. Now, resolution can take many forms. It can be that the scope. Of the new role is narrowed. It can be that the geographic territory that's covered by the new role is narrowed, and it may be that the employee sits out for a certain amount of time. We call that benching them or putting them on the bench or putting them on the beach. It may also be that the employee or the new employer pays the former employer some amount of money for each sale, or it may be some combination of these things or maybe something else. Let me give you a few examples. Remember the lead chemist that I referenced at the beginning of this video? For scientists like that, the parties can sometimes shift the chemist to a different product that doesn't compete with the product line that the chemist worked on for the former employer. Now, the fact that the chemist in the example took the secret recipe and supplier information for the former employer's new drink will complicate matters. It may be that the misappropriation may make all the difference between being able to resolve the dispute and not being able to resolve it. It may also be the difference between the new employer standing behind the employee and revoking their offer. This is why it's critically important for the employee to be a good leaver. They need to make sure that they are doing everything the right way. They shouldn't take information when they leave. They shouldn't hide where they're going. They shouldn't be acting contrary to the former employer's interests while they're still working for the employer. They really just need to be a good leaver. Now, there's a lot to unpack there. And at the end of the program, I've identified some resources that can help with that. Another example is that chief marketing officer that I mentioned at the beginning of the program, who developed the killer three month, six month and one year marketing plan. So when trying to find a resolution for them, the question is what can be done to protect the interests of the former employer but still allow the CMO to work at the new company. This is a hard one and it's a hard one because the employee has strategic knowledge that really is hard to separate from the knowledge that they're going to be using when they work for the new employer. Sometimes the role can be shifted from a strategy focus to an operations or implementation focus, allowing the employee to execute on an existing plan without any involvement in the development of a new plan for some amount of time. Typically, however, long is necessary to ensure that the employee isn't in a position to use their knowledge of the former employer's plan. For example, it's not uncommon for companies to revise their plans on a regular basis. So maybe the 12 month plan isn't set in stone. It's just more theoretical at this point. That may mean that it's really only the three month and six months plans that are the real concern. In that case, Maybe the CMO needs to be sidelined. What we call benched or put on the beach for 3 or 6 months rather than the year or two that might have otherwise been anticipated. Sometimes a former employer will pay for the employee to be in that position. It may even be part of a non-compete which we've recently been calling a garden leave clause. But typically that's not the case when a situation like this arises and when the new employer really wants the person. It's actually not unusual for the new employer to pay the employee, essentially giving them a paid vacation during the time that they're on the bench. Let's turn to the other example that I gave at the beginning of this program. The salesperson, if we're talking about a salesperson, oftentimes you can limit the products that they're selling. For example, if they're in the pharmaceutical area, have them not sell products that are for the same indication or the same stage of the disease. But generally the easiest way to deal with the salesperson is to move them into a different territory. Again, the problem with the example from the beginning is that the employee engaged in misconduct, refusing to tell an employer where you're headed does not help when it comes to trying to negotiate a resolution at the end. Now, that's not actually misconduct, but it really is not helpful conduct. In contrast, if they used information of the former employer in connection with their solicitation efforts for the new employer, that may be misappropriation. And again, that's the kind of misconduct that can make it very difficult to resolve a case that is otherwise eminently resolvable. And the real issue is the lack of trust. What they've done is they've taken a circumstance where had they left on good terms, the employer could have easily resolved things on a territorial basis or a scope of the products basis, but instead now they can't rely on the employee to conduct themselves honestly. Now, relatedly, if they're bound by restrictive covenants, it may be that a resolution can be worked around those obligations, such as the new employer agreeing that the employee will not be permitted to have any dealings with their prior customers whatsoever. This will put the new employer squarely on the hook contractually and may allay any concerns that the former employer has about the employee. Now, if things ultimately progress to a lawsuit, that still doesn't mean that you can't resolve it. It's not uncommon at all to settle the case on the courthouse steps, as they say, which is really immediately prior to or even after the initial injunction hearing before the judge rules. It's also a good time to consider resolution shortly after the judge rules, because once the judge determines what the employee is permitted and not permitted to do and how long that restriction will be in place, the parties know where they stand. That's often an opportunity to then negotiate from there. The employee will do and won't do. And for how long? Sometimes it turns out that the court's decision doesn't really address the key concerns of the former employer, but a negotiated resolution now will actually be able to achieve those results much better for the former employer and perhaps not so for the employee and the new employer if the court entered an injunction against them. In contrast, if the court refused to enter an injunction or entered a very narrow injunction, that may be helpful in order to get the case resolved as well. So these are just examples. There are many more variations and it just takes some experience, creativity and an open mind to figure out ways to set the parties on a path to helping their businesses rather than wasting needless time fighting in court a good deal. The resolution really turns on what are the interests of each party. The former employer may be concerned that the new employer is raiding their employees. Now the new employer is generally well within its rights to pursue employees from any company that it wants to. The issue is making sure that those employees comply with their post-employment obligations when they start working for the new employer. But to the extent that the former employer is concerned about that, certainly the new employer can give assurances that they won't have the employees violate their post-employment obligations. Now, companies have to be very careful about what they agree to. It is not appropriate for companies to agree not to hire from each other. Agreements like those are squarely within the crosshairs of the Department of Justice and the FTC. So companies need to be very careful to avoid agreeing to anything that might look like unlawful poaching agreements. Companies may have other interests as well. And actually, every now and again, it turns out that the two companies can work together with some sort of joint venture or other agreement that might provide both of them an opportunity in the marketplace that they wouldn't have individually. So keep an open mind and stay creative when you're advising companies and employees about how to resolve these matters. Okay. Now we've looked at all the perspectives. Let's turn to a few takeaways. So first, the warning signs of misappropriation. We've talked about them from both sides, right? The former employer or the or the soon to be former employer as well as the other side, the employee and the new employer. And really, it's the former employer and the new employer who really need to be on the lookout for these signs. Employees need to be aware what they're doing and not engage in improper conduct. But it's really the two companies that are going to be on the lookout for the warning signs that we've been through, steps to take before the employee departs. If you are the employee, you want to make sure that you've taken nothing. You want to cooperate. You want to not lie and you don't want to burn any bridges. Those are the keys. If you're the former employer, you want to make sure you've conducted an exit interview and you've turned off all access, right? So you want to understand what's happening, what's the risk, And you've locked down any immediate risk, and you do that by turning off the access. Finally, for new employers, they want to make sure that ahead of time the employee understands not to put any of the former employer's information onto the systems of the new employer and not to use or disclose it. And then they want to make sure that there is no information acquired in any way by the new employer, if it belongs to somebody else, in particular the former employer. And then the last of the takeaways is the steps to take after the employee departs. And from the former employer's perspective, it should be assessing the risk and determining a course of action for new employers. They need to assess the risk and determine a course of action as well. Are they going to be standing? Are they going to have a choice about what their course of action is? Maybe they get sued, maybe they don't. But they probably do have a choice about whether they're going to retain the employee or not retain the employee or limit the employee or whatever they're going to do in connection with the employee. And that may actually resolve any dispute that they have with the former employer. Although if the employee has put the former employer's information on the new employer systems, there's going to be some sort of remediation that's going to need to happen. And finally, for the employees, it's the same warning. Do not retain, use or disclose any information of your former employer and make sure to take all communications from your former employer seriously. So with that, I'll leave you with a few resources that might be helpful as you explore this area further. There's a 50 state chart on the laws of non-competes around the country because that actually is one of the key ways, as we've talked about before, that companies go about protecting their trade secrets when an employee might go to a competitor where they would use that information for the employees, they may want to consider looking at two videos. One is called the Exit Plan Being a good leaver, and the other is called Avoiding Mistakes when Starting a New Job. Much of what we discussed today is included in those videos and there's some training that goes along with that. In those videos, we have a podcast and a blog that address a lot of these issues as well. They may be useful resources as well. So with that, thank you for attending and I look forward to answering any questions that you may have if you have any follow up.

Presenter(s)

RBJ
Russell Beck, JD
Founder and Partner
Beck Reed Riden LLP

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                                                                              Credits
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                                                                              December 31, 2026 at 11:59PM HST

                                                                              Status
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                                                                                Status
                                                                                Pending
                                                                                Credits
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                                                                                  Not Offered
                                                                                  Credits
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                                                                                  Available until

                                                                                  June 8, 2025 at 11:59PM HST

                                                                                  Status
                                                                                  Available
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                                                                                    Status
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                                                                                      Status
                                                                                      Pending
                                                                                      Credits
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                                                                                      December 31, 2026 at 11:59PM HST

                                                                                      Status
                                                                                      Approved
                                                                                      Credits
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                                                                                      June 8, 2025 at 11:59PM HST

                                                                                      Status
                                                                                      Available
                                                                                      Credits
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                                                                                      September 11, 2024 at 11:59PM HST

                                                                                      Status
                                                                                      Approved
                                                                                      Credits
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                                                                                        Status
                                                                                        Not Offered
                                                                                        Credits
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                                                                                        June 8, 2025 at 11:59PM HST

                                                                                        Status
                                                                                        Available
                                                                                        Credits
                                                                                        • 1.0 general
                                                                                        Available until
                                                                                        Status
                                                                                        Unavailable
                                                                                        Credits
                                                                                        • 1.0 general
                                                                                        Available until

                                                                                        June 8, 2025 at 11:59PM HST

                                                                                        Status
                                                                                        Available
                                                                                        Credits
                                                                                        • 1.0 general
                                                                                        Available until
                                                                                        Status
                                                                                        Unavailable
                                                                                        Credits
                                                                                          Available until
                                                                                          Status
                                                                                          Pending
                                                                                          Credits
                                                                                            Available until
                                                                                            Status
                                                                                            Pending
                                                                                            Credits
                                                                                              Available until
                                                                                              Status
                                                                                              Pending
                                                                                              Credits
                                                                                                Available until
                                                                                                Status
                                                                                                Not Offered
                                                                                                Credits
                                                                                                  Available until
                                                                                                  Status
                                                                                                  Not Offered
                                                                                                  Credits
                                                                                                    Available until
                                                                                                    Status
                                                                                                    Not Offered
                                                                                                    Credits
                                                                                                      Available until
                                                                                                      Status
                                                                                                      Pending
                                                                                                      Credits
                                                                                                      • 1.0 general
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                                                                                                      September 30, 2024 at 11:59PM HST

                                                                                                      Status
                                                                                                      Approved
                                                                                                      Credits
                                                                                                        Available until
                                                                                                        Status
                                                                                                        Not Offered
                                                                                                        Credits
                                                                                                        • 1.0 general
                                                                                                        Available until

                                                                                                        June 8, 2025 at 11:59PM HST

                                                                                                        Status
                                                                                                        Approved
                                                                                                        Credits
                                                                                                          Available until
                                                                                                          Status
                                                                                                          Not Offered
                                                                                                          Credits
                                                                                                          • 1.0 general
                                                                                                          Available until

                                                                                                          June 8, 2025 at 11:59PM HST

                                                                                                          Status
                                                                                                          Available
                                                                                                          Credits
                                                                                                            Available until
                                                                                                            Status
                                                                                                            Pending
                                                                                                            Credits
                                                                                                              Available until
                                                                                                              Status
                                                                                                              Not Offered
                                                                                                              Credits
                                                                                                                Available until
                                                                                                                Status
                                                                                                                Not Offered
                                                                                                                Credits
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                                                                                                                  Not Offered

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