When Can a Former Employee-Turned-Whistleblower Use Internal Company Documents?

Corporate Counsel

 | December 8, 2017

 | Greg Keating and John Calhoun

Imagine you own a company, and your chief compliance officer one day “blows the whistle” and alleges your company broke the law. After she leaves your company, you receive a demand letter from her attorney alleging that you have retaliated against her for blowing the whistle. You then discover that she sent dozens of highly confidential company documents to her personal email account, and that she is now using those documents to support her case. Can she really do that?

It depends. Despite an explosion of whistleblower litigation over the last decade, this basic question remains hotly contested. In mid-October, a federal district court in the Ninth Circuit plowed some new ground, but, at best, courts have provided partial (and sometimes contradictory) answers. To make sense of this important and sensitive issue, this article summarizes what we can learn from a few of the highest-profile cases that have come down within the last year. Ultimately, the pattern that emerges is of a federal judiciary which still has a lot of work to do, but which is slowly developing a body of case law that puts some important limits on whistleblowers’ ability to use company documents to support their cases. This matters—whether a whistleblower can use a handful of hot, confidential company documents can sometimes make the difference in a multimillion dollar lawsuit.

Can the Former Employee-Turned-Whistleblower Use Documents She Sent to Her Private Email?

Maybe not, especially if the former employee signed a confidentiality agreement—but courts are split. Recent case law suggests that whistleblowers are not protected if they signed a confidentiality agreement but then take and then attempt to use “vast and indiscriminate” amounts of confidential company data and documents. In Erhart v. BofI Holdings, a recent decision out of the Southern District of California, the court discussed another recent federal court decision in California, Cafasso, United States v. General Dynamics C4 Systems, in which the Ninth Circuit held that a whistleblower was not entitled to use eleven gigabytes of confidential company documents (totaling tens of thousands of pages of documents). A decision in the federal courts of Virginia likewise held that a former employee-turned-whistleblower cannot “pilfer a wheelbarrow full of an employer’s proprietary information in violation of their contract merely because it might help them blow the whistle.” In Erhart, however, the court permitted Erhart’s use of confidential company documents (despite Erhart’s confidentiality agreement) because Erhart was “very careful” in selecting the information he accessed and turned over. The picture that emerges from these split decisions is that, although courts have occasionally sanctioned the limited use by whistleblowers of confidential company documents, courts are reluctant to condone a former employee-turned-whistleblower’s use of large amounts of indiscriminately pilfered documents.

Can the Former Employee Use the Company’s Privileged Documents?

Probably not, unless the company has already waived privilege. In a very recent case, U.S. Ben Ferris v. Afognak Native, the federal district court of Alaska held that Ferris, a company’s former chief compliance officer-turned-whistleblower, could not use nine privileged company documents that he had downloaded to an external hard-drive while he was still employed at the company. The court held that the intentional misuse of privileged documents is so reprehensible that it outweighs any competing interest in promoting whistleblower lawsuits against alleged corporate fraud.

However, in Wadler v. Bio-Rad Labs, the federal district court of northern California held that a former employee-turned-whistleblower can use privileged documents if the company first waives privilege over its documents (by, for example, using other of its privileged documents to defend itself). A company cannot have its privilege cake and eat it too.

Can the Whistleblower Share Confidential Documents With the Press?

Likely not. Although courts generally recognize that the interest in promoting whistleblower litigation can override some competing interests (such as enforcement of confidentiality agreements), a federal district court in southern California held that a former employee-turned-whistleblower nonetheless cannot disclose confidential company documents to the press. In Erhart, the court noted that media disclosure is an unacceptably blatant violation of a former employee’s obligations to protect his former employer’s confidential information.

Can the Whistleblower Share Confidential Documents With Government Agencies?

Probably. While disclosure of confidential information to the press is inappropriate, disclosure of that same confidential information to government agencies may in some circumstances be appropriate. In Erhart, the court deemed acceptable Erhart’s disclosure of confidential company information to the SEC and the Office of the Comptroller of the Currency because “the public policy in favor of whistleblower protection” would be undercut if whistleblowers were prohibited from sharing relevant information with government enforcement agencies. The government agencies and the whistleblower would still nonetheless need to keep the information otherwise confidential.

Pulling It All Together

Federal courts are just beginning to draw clearer lines for whistleblower’s use of confidential or privileged company documents. Although a great deal of uncertainty remains, it is clear that judges are recognizing the need to limit the types and amounts of sensitive company data that whistleblowers are entitled to use. This article addressed a few of the most recent, highest-profile attempts. More will surely follow, as the fate of hundreds of billions of dollars of potential damages in whistleblower lawsuits could hang in the balance.

Bottom line, companies need to be aware that a whistleblower’s entitlement to use confidential company information is a hot topic at present, and courts across the country disagree on where to draw the line. Before taking any action against current or former employees, companies are strongly encouraged to consult with counsel and to carefully review the precedent in their jurisdiction. Companies should also review and update their internal confidentiality agreements to ensure that they adequately and lawfully underscore expectations around the use and disclosure of confidential information. And, most of all, companies should stay tuned as this area of the law continues to percolate.

 

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