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Protecting Firms from Disgruntled Employees

December 14, 2010

Accounting firms should take steps to safeguard themselves from employees who might decide to bring the firm’s clients and secrets with them on a tiny thumb drive when they join a rival firm, recommended one legal expert.

Joel Greenwald, managing partner at Greenwald Doherty LLP in New York, talked about new computer forensic technology that can be used to uncover evidence of disloyalty, during a practice management conference hosted by the New York State Society of CPAs’ Foundation for Accounting Education on Tuesday.

“Delete does not mean delete,” he noted. “Employees’ bad behavior can be tracked. If an employee was unhappy and left, I seriously urge you to remove their hard drive and put it on the shelf. If somebody has left you and will potentially sue you for sexual harassment, you want their hard drive. You don’t have to scan it right away. That can cost hundreds of dollars, but take the right step upfront and prepare for a rainy day.”

By capturing an image of the drive, firms can find evidence of nefarious activity, almost like cookie crumbs.

“You find an e-mail from the guy, saying something like, ‘By the way I’m going to Company B in a couple of months so I would suggest you hold off doing business with us for a while,'” said Greenwald. “We see a lot of those nefarious e-mails.”

Imaging of a computer hard drive can also be used by a disloyal employee, Greenwald noted.

“We have seen some cases where we have had people prosecuted for having their former secretary go back to their old company and get their computer hard drive imaged, and then they use it in their new company,” he noted.

Many smaller accounting firms think of themselves as being in a family business, and tend to treat employees like family. Smaller firms prefer to have that type of culture and don’t want to be seen as paranoid. However, sometimes suspicion is warranted.

Greenwald recommended to audience members that they require employees to use computers owned by the firm, as it’s much easier to access them later, though there are some exceptions, of course. “What happens if somebody throws that laptop in the East River?” he asked. “Is there any way you can go after them?”

Greenwald said he has also seen situations where a key employee has left and, even though they had a non-compete agreement, they managed to remove it from their employee file, or had a friend in HR remove it for them, and the employer doesn’t have the document anymore. He recommended that firms keep multiple backups and copies of such documents.

“You need to think about any agreements you have with your employees and have a backup where they signed it,” he said. “Whether it’s a non-compete agreement or the employee handbook that they signed, make sure you have multiple backup copies.”

Firms should also be careful about any secrets that their new employees bring with them. The first time Greenwald saw computer forensics used to any great extent was many years ago when he received a phone call from a CPA who told Greenwald he was hiding beneath his desk when the U.S. marshals came to visit his offices.

“Some crazy judge had issued an ex parte order ordering them to seize the computers,” said Greenwald. “The company had hired somebody who had taken the customer list with them. My client had no idea they had taken any trade secrets.”

While it wasn’t exactly the formula for Coca Cola, the firm ran afoul of trade secret protection laws just by hiring the new employee.

Greenwald also discussed how some companies monitor their employees with video cameras and recording devices on phones. However, they can end up violating privacy and wiretap laws, if they carry things too far.

“You don’t have to give disclosure that you have video cameras anywhere, but you can’t put them in private areas like dressing rooms or bathrooms,” he said. “You also can’t have audio. That’s considered wiretapping. What about company cars and things like GPS? I don’t see a problem with that, but why not put that in a consent form within the electronic communications policy?”

Laws are changing quickly, Greenwald noted, but sometimes the law doesn’t change with technology nearly as quickly as it needs to, especially with social networking sites. He recalled one case in which an employee told a manager that another employee was saying negative things about the company online. The manager asked for their password on the social networking site and later fired the employee who had been bad-mouthing the company. That employee later sued the company for wrongful termination.

“They had at-will employment, but the problem was that they used surreptitious means by pressuring that other employee, and they were fined by the Federal Trade Commission,” he said.

Greenwald admitted that he is not a “fan” of having a company policy on social media, but he noted that some companies have policies specifying that a manager cannot “friend” a subordinate employee on a social networking site.

He thinks that’s probably a good idea. “Sometimes the less you know, the better,” he said.

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