Infrequently Asked Questions:
Can Employee-Owned businesses and intellectual property create a conflict of interest with salaried employment?
The rise of information technology, including the Internet, World-Wide-Web, and low cost desktop publishing, present unprecedented opportunities for individuals to start their own little businesses and establish themselves publicly while still working. But there may be some legal traps for them and their employers. This question-and-answer session analyzes some of the possible problems. Many of these problems will sound largely theoretical, but in this age of litigation it is well to think through these scenarios carefully. The resolution of many of these issues may seem to depend upon the perception of the individual of the facts, based on past experiences.
While these observations apply mainly to self-publishing businesses, they could also apply somewhat to other e-commerce ventures and web-hosting.
A person P, employed as a salaried professional technician by company C, writes a controversial political/social book, and then sets up his own .com site to supplement the book and offer it to the public. He also offers the book through the usual online catalogues, like amazon. To get an ISBN for the book and a publishing entity, he sets up a proprietorship with an assumed name, but, while living off of his salary, does not make money on it for a few years and does not claim expenses for it on his federal income taxes.
Concerns for the Employer:
. Protection against any misuse of company-proprietary information, especially a customer database, or legal sanctions because of the potentiality or “temptation” to use the database as a source of potential customers for the employee.
. Prevention of any downstream liability if there were a lawsuit against the employee for an intellectual property tort
. Prevention of any charges of “hostile workplace” if the employee made offensive remarks in his own publications (on-line or print)
. Prevention of unwanted attention from the media, or unwanted attention to co-workers or other stakeholders of the company.
Q1: Many private companies have contracts with government agencies involving access to such government data as Medicare or Medicaid, US Postal Service lists, welfare, veterans, military members, government employees, student loan recipients, taxpayers, mortgagees. Furthermore, there are many privacy laws regarding safeguarding medical data, credit histories, and the like. Could the mere fact that such an employee had access to this data during the course of his work violate privacy laws (like the Privacy Act of 1974) on the theory that the employee has an indeterminate “temptation” to access such data for his own commercial purposes?
A1. The Privacy Act of 1974 gives government agencies administrative authority and responsibility to safeguard government-owned consumer data, including physical safeguard of the data and reasonable conduct rules for (contractor) employees who have access to the data. Generally, agencies explicitly prohibit the use of such data for any but legitimate and “licensed” business purposes, and prohibit the disclosure of consumer data to “organizations,” as for fund-raising or political purposes. Is an employee-held “proprietorship” an “organization” under the meaning of such regulations, especially if there is an assumed name or trademark? Probably not, but generally government agencies have contract officers who have the authority to make such determinations on a case-by-case basis. This whole is very little known, and is a potential “give me a break” situation, since obviously a publisher of a cookbook or a person selling household products for partial volume refund is not really a threat to consumer privacy. It is worthy of note that government agencies (even the IRS) generally allow their own employees to run businesses on their own time, with reasonable oversight and due-diligence.
Q2. But shouldn’t an employer protect his customers or stakeholders as much as possible from any possible threat to compromise of their privacy?
A2. There is a balance to be struck between protection of the public and legitimate rights of the employee. Ironically, part of the answer to this question is the observation that misappropriation of an employer’s customer information is theft and is a crime, and presumably an employer is diligent enough not to employ “criminals.” The best way for the employer to protect the public is to carefully screen its employees, for criminal convictions (sometimes this is required by law) and especially for credit worthiness. Employers should proactively prohibit any unethical behavior within their workplaces, which are directly under their control.
Q3. Man employers claim ownership of intellectual property created by employees on their own time and with their own resources?
A3. Generally, no. The Copyright Act is quite protective of the rights of employees to their own intellectual property.
Q4. But isn’t it unfair for someone to use knowledge gained in the workplace, for which he was paid, for his own purposes? Wouldn’t this involve giving away trade secrets or confidential information?
A4. People have always been free to use their work experience to look for other jobs, so they may certainly use it for their own business ventures. They key idea is that the experience they take from the workplace must be generic in nature, and not depend on the specific facts about a particular workplace and especially proprietary facts learned within a company. A programmer, for example, may publish articles or a book about software techniques as long as they are generic and as long as the great bulk of the work in his articles is his own, developed outside the workplace. A good example is a novel recently written by a telephone lineman based on the idea of overhearing a conversation while repairing a line. This is OK as long as the actual conversation (or anything like it) never took place.
Q5. Could an employer be held liable for the intellectual property torts of an employee with his own intellectual property or for other torts associated with his own business? Does the fact that employee depends upon salaried income create a liability for the employer?
A5. In most cases, no (but see Q6). The employer would have to be aware of unethical behavior and involved in it. In fact, this point probably encourages most employers to distance themselves from their employees’ own private affairs. When a person earns a salary, the salary, once paid, is that person’s own money. This situation does not imply that the company has “invested in” or subsidized the employee’s business (which would be the case if the employer actually provided capital).
Q6. Could an employer be liable if offensive statements made by an employee on his own web site disturb other employees or customers who know about the statements?
A6. This has actually been an issue a few times, usually in connection with pornography. This possibility has probably been underestimated. If an employee’s off-the-job behavior clearly distracted other employees because of its offensive nature, the employee probably should be terminated.
Q7. If the employee agrees not to mention the employer in his own writings, does this sufficiently protect the employer and its stakeholders from unwanted attention?
A7. For practical purposes, yes. But there is at least a theoretical risk. Publishing a book or running a significant web site would make the employee a “public figure” (at least a limited public figure) in the eyes of common law. This means that in some cases media outlets could legally disclose the employee’s connection with the employer without permission. (That is, publicity rights mean the loss of some privacy rights, and this can affect others associated with the person). However, reputable media outlets follow high ethical standards of journalism and would generally not make such disclosures in most circumstances. Supermarket tabloids and unsavory web operators may be another matter.
Some employers actually will permit associates to mention identify their employer in public as long as accompanied by a statement that the employee’s “opinions” are his own. But here the employer is probably motivated by concern that an employer may try to magnify his opinions by wrongfully claim that his employer is behind him. See also Q22.
It is noteworthy that in a few states employees of insurance companies or even banks (even low-level employees) may not make campaign contributions, even with their own money.
Q8. Is an employed author (along with his employer) in a legally safer position if he is published by a third party (a trade, cooperative, or subsidy publisher) and does not need his own business entity to distribute his books or have an ISBN?
A8. Good question. Many people believe that “self-publishing doesn’t count” and if you can convince a trade publisher that it can make money selling you that gives you more credibility. Of course, this can be very difficult for a new or unestablished author (the way it used to be). Subsidy publishing is very expensive, but cooperative publishing (printing on demand) may be very reasonably priced. Of course, dealing with a third party sometimes raises conflict-of-interest questions of a more conventional sort.
Frankly, though, this line of thought may come from some in the conventional publishing industry who may be more interested in turf protection (the “books on the coffee table” argument) and eliminating low-cost competition. Of course, a self-publisher could run his own web site, but not sell his books through it but only through distributors or named listing services like amazon. This could conceivably defuse the “privacy” argument mentioned in Q1.
Q9. What about professionalism? Is it fair to consumers and to the employer for the employee’s time and loyalty, even if it is his own, to be divided?
A9. It is true that quality control (the “typos”) , of the kind that used to be practiced by the big trade houses, is difficult in a low-cost self-funded environment. As for the workplace, there is a balance between exploring one’s own interests and the possibility of a future second career, and dedication to a career path with the employer. Just a few years ago everyone was talking about “looking out for number 1” in the workplace, given the downsizings and layoffs.
Q10. Is it inappropriate for employees of a company to discuss issues that affect the company publicly?
A10. This might seem like a reasonable conjecture to some people, but one has to consider the reality of a modern society, that issues are interconnected and affect both organizations and individuals in complex ways that are difficult to parse. Almost any company is affected by public policy, with regard to consumer protection, insurance, medical and lifestyle privacy, energy policy, taxes, “family values,” the military, education.
However, it is appropriate for employers to require that their associates not discuss the company itself publicly, including participation on “trash boards” associated with stock-price listings. There have been incidents where employees have been prosecuted or pursued by the SEC for trying to manipulate the stocks of companies they work for (or even of companies they don’t work for) with rumors in chat rooms and on trash boards.
An employee with a substantial individual public presence with respect to any issue probably should not join any employer-sponsored PAC (political action committee).
Q11. Does it help if outside publishing is done only through established non-profit organizations?
A11. Mainstream companies generally state that they will not interfere with lawful political activities by employees or participation in non-profit political advocacy groups. But in some cases limiting oneself to working through established groups severely restricts the opportunity to establish oneself with respect to some important body of issues. Like companies, non-profit groups tend to be adversarial, turf-oriented, political or partisan, and do not have a good record of encouraging complete intellectual honesty. Organizations tend to oversimplify political or social messages in the attempt to reach as many potential voters as possible. This brings up the dichotomy of “winning converts” v. “winning arguments” (as in a famous Harry Browne speech to the Libertarian Party of Minnesota in 1998).
A proprietorship set up to promote a book is by definition for-profit. But it would be possible for a person to redirect all of his sales revenue (at least after costs) to charity or to his chosen causes until he was ready to stop working.
Q12. Are there some jobs that preclude one’s exploring a second career while working or being vocal about public issues while working?
A12. The most obvious problem would come with executives/officers/insiders or sales people who are expected to speak for the company using their own names. Or with persons with direct reports or with people (like underwriters) who make decisions about customers. Of course, an employer should have processes in place to make sure that employment actions are reviewed fairly, and that decisions regarding customers are processed fairly and reviewed by more than one person.
There is court precedent for the idea that some jobs within a company may restrict a person’s use of his own publicity rights while others don’t. The Washington State supreme court upheld, in 1996, the transfer of a reported to a copy-editing job by a Tacoma newspaper after her gay rights activities attracted public attention; it was held that her appropriation of her own name outside the workplace affected the public credibility of her objectivity as a journalist.
Q13. But shouldn’t a person focus on one career direction at a time, and, if at a higher salary level, be employed only in a position totally commensurate with his career direction?
A13. There is a legitimate question about career intention. A job should be viewed in terms both of short-term performance—the practical value of a person’s work on a day-to-day basis, justifying what is spent on it--and whether a job in its current format offers long term career advancement. At some point a person launching a second career, particularly one which would make him publicly visible, would want to consider becoming an independent consultant and offering more services on a short-term, just-in-time basis while pursuing his career aims.
A few years ago there was a lot of discussion of the need for professionals to remain as independent as possible, to change jobs frequently to gain new skills, to eschew “loyalty,” and to look out for themselves first, since employers were so quick to discharge people during downsizings and the tendency for companies to outsource. In this context concern about conflict-of-interest seems out-of-place. Since the late 1990’s this trend has reversed somewhat, not only because of new demands for workers but because public policy has favored stable employment with pretax benefits. So this puts the person with separate career interests in a position of having to weigh different interests.
Employment through consulting firms (as well as free-lancing) that provide short term consulting services may provide a way to bridge income while pursuing new career directions. But in the past few years companies have tended to make less use of short-term services and been more interested in longer term career commitments (but see question A20 below).
Writing itself is often viewed as a profession. In the past it was expected that people who published materials specifically of interest to them could make a living writing what other people wanted. But this is a perception that is likely to change with the development of the Internet and of low-cost cooperative publishing. So is it “unfair” to work in one profession and have a public identity dealing with a major issue but not making a living at it? Should an employer own an employee’s “right to publicity” (Q12)? There is no statute that says this, and case law (as Q12) seems to suggest that this depends on specific job duties. Again, the biggest stake is how thoroughly difficult ideas really will be aired before the public without as much freedom to speak as possible. This is the ultimate meaning of “do ask, do tell.”
There is indeed a legitimate “professionalism” question. Can an individual credibility pursue two different professions (“service” v. “content”) at the same time and professionally serve two different kinds of customers? Is an individual distracted by time requirements, say, from pursuing proper certifications in his first profession? These are practical more than legal questions.
Q14. What about pseudonyms?
A14. Some writers use pseudonyms or pen names when they publish while still employed (so that the employer still keeps the employee’s original “right of publicity”) , and everyone knows that this is very easy in cyberspace (to establish multiple identities). My own feeling is that this dilutes the credibility of what one has to say.
Q15. Is it more provocative to offer a book in print and to supplement it with a commercial web site than just to offer a book?
A15. A political or social non-fiction book is circumscribed by the history that has occurred as of the time of publication. With a web site it is possible to keep adding footnotes, corrections, or other supplementary materials for customers. This makes the book more valuable. It is also possible to attract new readers through the search engines. Although often the material is given away “for free,” this is a way for a previously unknown writer to attract an audience if what he offers is original enough. Display of material “for free” sometimes actually promotes sales of hard-copy, and also provides anyone concerned about the content (say, for possible misappropriation of confidential information) a convenient and no-cost way to verify that this is not the case.
There could be some concerns that people who know where the person works could try to “read hidden messages” into the changing content of his site. It is important that such a site refrain from giving specific financial advice or discuss specific securities as investment vehicles. Usually investors are influences by expectations about earnings or possible acquisitions.
One other observation that is relevant is that it is easy to establish one’s own domain name (.com), and this tends to make a site more visible (to search engines) and credible than a subsite (such as Hometown AOL) underneath another provider. There have been trademark controversies over dot.com domain names. But possibly, and employer could adopt a policy allowing employees who self-publish on the net to use only subsites and not to own their own domains, or hide their sites from search-engine robots with metatags (a practice that would essentially make the sites “unpublished”). Changes in the domain-name industry to differentiate between individuals and organizations would be welcome.
A16. Some companies have no-moonlighting policies. How would such policies affect the operation of a home-based business while working?
A16. A home-based business is a property interest as well as a “second job.” It has present and future value, and cannot be taken away without compensation. However, an employee could be expected to “sell” the business or to hire other people or third-parties to run it so that he does not “work” at running it. This kind of remedy would appeal to those who are more interested in turf protection and eliminating low-cost comeptition than in ethics.
Q17. Doesn’t attention to off-hours activities dilute the importance of proper conduct on the job and proper use of a company’s computer resources?
A17. Definitely. Most companies still prefer to emphasize the use of their own resources in writing their communications policies, in order to remind employees that they do not have “privacy” when using corporate email and resources. Employers need to focus upon efficiency within the space of their own workplaces. But jobs vary in the extent to which they are performed entirely “within the workplace.” And the pervasive nature of the Internet makes separation of company and personal resources and property more difficult in some cases. (What if the employee uses the company’s computer at home or, conversely, uses his own computer for night support?). One possibility is to block access to all employee-owned sites from corporate computers.
Although most mainstream employers do not want to interfere with or become involved in employees’ outside activities beyond what is absolutely necessary, there is a wide variation in the general public on how this kind of issue may be perceived. Some marketing-oriented or lobbying-oriented jobs involve relating to the public and building a personal reputation in public, and any outside activity could compete with this reputation.
Q18. What is the major contribution of self-publishing? Why is it important?
A18. Self-publishing allows writers more freedom to explore unconventional and commercially unproven subject matter thoroughly, and can be pursued at low cost while still employed. The additional intellectual property content does compete with offerings from more conventional sources, but this may simply have the effect of forcing more conventional publishers and media outlets to look at unusual material or to devlop their material more thoroughly. It also provides the public depth not normally available from adversarial, coalition style debate from conventional political lobbying (“political correctness”) set up to represent “special interests.” The nature of today’s issues (such as “gay rights”) requires very thorough examination for the proper understanding of the connections between personal values and behaviors and public policy, and they cannot be properly studied piecemeal, one issue at a time, from the point of view of particular interest groups. Gay issues (discussion of issues like AIDS, family values, discrimination, the military) particularly illustrate this continuity and confluence of issues, personal lifestyles and behaviors and their impact on business and public culture as a whole. Courts, as in ACLU v. Reno II (Judge Reed’s Preliminary Injunction) are addressing the question “Who owns the press?” and recognize that the new freedoms of speech offered by the Internet make for better public policy.
Employment interview issues
Q19. Will employers start “asking” job applicants if they have their own “pseudo-commercial” web sites? Could some employers view this as “troublemaking”?
A19. This sounds reasonable, and employers could use Internet search engines to locate these sites as a routine procedure. But I have not heard that this is being done much (as of September 2000), except in some cases for technical writers and “professional” web designers, where employers want to see “portfolios.” (In one case, I know of a gay activist who made his political site “hidden” from search engines for this reason.) A correlated question would be asking job applicants if they own their own job-ready PC’s and high-speed access.
Some Questions about Contracting
Q20. Is it better for a writer not yet able to make a living off of writing to do independent contracting, say information systems? Will he have a liability insurance problem?
A20. Intuitively, this sounds right. But there still some issues, like insurance. The contractor should be prepared to purchase his own professional liability insurance, and if he writes he may need a separate media risks or media perils policy. These policies have been quite expensive, although lately there have been more economical group policies offered (such as media perils from the National Writers Union). The contractor will need to purchase workman’s compensation insurance if he/she plans to work on the employer’s site. The insurance world offering business insurance is still geared more towards professionals with enough resources to set up commercial offices on their own and even to hire other W2 employees. Working as a contract programmer after retirement to supplement income is somewhat in an unclear, limbo land as for insurance. Would an insurance company offering professional liability (for “service” object to the fact that the idea that a customer also has a side business that requires separate media perils (for “content”)? Probably not, but this is relatively unexplored. There are already some companies that offer umbrella insurance, general and professional liability insurance, and intellectual property insurance, usually with a “cafeteria plan” that treats these as separate, independent coverages. One interesting special observation is that web-hosting services which monitor and edit content may have special liability problems (and this gets back to the controversy as to whether an ISP is a “utility” or a “publisher”). Some employers today will act as “brokers,” placing contractors to be paid hourly but technically W-2 employees with no benefits except social security status and maybe liability insurance (this arrangement is popular with companies that hire contractors only through preferred vendors and with professionals who do not need benefits because their spouses provide them).
Q21. Would a broker hiring contractors or a “manpower firm” hiring and placing temporary employees at customer sites fear that a contractor’s writing activities jeopardize the “privacy” of the customer—that is, that incidents in the customer’s workplace will be referred to in a contractor’s web site, however indirectly? Would a broker be legally obliged to check into this out of fear of downstream liability?
A21. I haven’t heard of this, and this really does sound like a “theoretical” issue. The writer must always respect normal intellectual property law precepts (invasion of privacy, maintaining confidentiality, trade secrets, and the like). Contractors always same the same confidentiality agreements as employees, but these relate to intellectual property content and stakeholder relations specifically belonging to the customer. The law generally does not “presume” that someone will do something wrong until a certain level of bad faith or reasonable suspicion is reached. (And that’s one reason in my thinking that the military’s “rebuttable presumption” for gays in the military matters in other areas.) When a manpower or consulting firm (like an accounting firm) hires W-2 employees to place at customer sites, however, there may be a publicity rights issue: the consulting firm will want to use the resumes of its employees to “get business” and might take the position that a public reputation for an employee, as established outside of his established profession, interferes with the use of this name to promote the company.
Q22 Is there something basically wrong with offering editorial content commercially (to promote oneself) while still working in a salaried position? Is this unprofessional and unethical, or is it a legitimate use of free speech?
A22. There are several elements to this question, which pretty much wraps up all the other questions. First, remember that companies must and will generally be quite deferential to employees’ rights to free speech and expressive association as normally understood in a democracy. Companies may in fact have political PAC’s but are generally very respectful that some employees will not join them. Employees are encouraged to vote and support political candidates and attend events in a normal individual manner. This is a big improvement over the past thirty years, when people used to be fear being seen at gay political events. (There have, of course, been scattered problems, as the DeMuth case, or a case where someone was fired for being seen in an MCC Dallas choir.) Generally this participation includes all non-commercial speech, such as letters to editors, although officers and managers may be expected to be more discrete.
Some forms of speech afford more future opportunity of a commercial or political nature for the speaker, and tend to give the speech more weight in public debate than individuals normally have (or expect). For example, one might run for office, and the employer probably will require a leave of absence or resignation. One might want to serve on a board for a lobbying gorup, and the additional public attention involved may well and properly motivate the employer, even for holders of purely internal or technical positions, to be informed and to give consent. One may publish commercially, either in established outlets or with self-publishing, or even enter dramas and film production. Should employers prohibit salaried employees from leveraging their speech this way (beyond “ordinary” democratic participation), even though no direct compromise of the company’s own information resources or conflict of interest [as usually defined] is likely?
It’s easy to list arguments for various positions. Courts in the United States have generally shown a strong deference for free speech even in commercial settings, and the courts set a certain expectation of respect for individual employees even if no binding precedent for private relationships. In most cases (given that the employee conducts his writing properly according to IP law) the likelihood of real problems is very remote. But certain rules sound reasonable: the associate should hold largely technical, generic duties (often of a non-discretionary, support nature), should not have access to insider information, should not be promotable to management, should not make decisions about customers, should not hold positions of intermediate responsibility (team lead, project manager) for more than a set period of time, and possibly should agree to leave or “retire” after a set number of months or years. The employer may want to consider waiving “employment at will” for more senior employees if it wants to keep ownership of all outside intellectual property interests for essentially contingent reasons.
Q23. What is the reaction of the media (broadcast, publishing and film) industry to these questions?
A23. Media companies tend to have very strict conflict of interest rules written into their contracts since their performers will be publicly known. However, in independent film-making media companies are still more concerned about the opposite problem (investor fraud) than possible conflicts of interest with previous employers (of a non-media nature) over intellectual property. It is often considered quite acceptable to work right up to the day that one has obtained venture capital money for his own new media or film venture (but then to leave). Indeed, this may be seen as a sign of financial and character stability (as opposed to the “credit card” problem).