Get it in fine print…early.
That's the advice many experts have for mortgage companies seeking to ensure soon-to-be ex-employees don't walk off with a trove of proprietary data along with their dirty coffee mugs.
Detailed contracts protect companies and departing loan officers if the loan officers want to take customer information to new jobs, but they are especially important for the employers.
"It's critical for a company to nail down that it owns all of this information," said attorney Robert Lotstein, who specializes in counseling mortgage lenders on federal and state regulatory compliance.
"The information," no matter how it was created or assembled, "needs to be maintained on the company's server and not kept in any individual or personal files — not just for privacy reasons, but for the company's ability to maintain its relationships with its customers," he said.
Ownership of client relationships and any related information has always been a source of contention between loan officers and employees who are fired or leave for greener pastures. But data security laws have added another reason for companies to be proactive in this area.
If a loan officers remove information as they are changing jobs, enforcement officials could determine it was a breach of privacy laws.
It is important to come to an agreement "while everything is friendly and you're in the honeymoon stage," Lotstein said. "You want to talk about what happens if things get ugly."
The recent $25 million jury award won by Mount Olympus Mortgage Co. in its lawsuit accusing former employee Benjamin Anderson and his new employer, Guaranteed Rate, of "corporate espionage" serves as an important reminder of why agreements are crucial.
In the exhibits to the
Plus the company had an employee handbook which specifically defined the types of confidential information that was prohibited from being taken, according to Chad Hummel, who is Mount Olympus' attorney.
But to some in the industry, how the initial contact was made should also play a part in what information is taken to the new company. If that name and phone number came from a lead supplied and paid for by the mortgage company, it should remain as property of the mortgage company, said A.W. Pickel, CEO at Lenexa, Kan.-based LeaderOne Financial.
But if a loan officer visits real estate offices, and brings doughnuts or magnets and the like along with the rate sheet, that loan officer has created the relationship. "Especially, in a lot of cases where a company won't reimburse the loan officers for those expenses, then in my opinion…if the loan officer spends their own money to develop that business, they are almost acting like an independent contractor at that point," Pickel said.
That was Guaranteed Rate's argument. "Ben [Anderson] worked for years and paid marketing expenses to develop his personal client list — a list that included Ben's friends, neighbors and even his own family members," the company's post-verdict statement said.
It is those
For Don Frommeyer, a senior loan officer for American Midwest Bank in Carmel, Ind., there is a very hard and fast line.
"It has always been assumed that the pure database belongs to the company. This database usually contains all information about the loan and personal information from the customer," said Frommeyer, who added that the customer belongs to the originator. He has this in an agreement with American Midwest.
"I know that when I changed companies, I did not copy or take anything from the database as it was considered property of the previous company," he said. "However, I do have an Excel spreadsheet of the customer name, address and phone number that I keep for mailings, etc., and follow up with them."
Karen Deis, a former mortgage originator and company owner who now trains salespeople, pointed out "if the loan officer is going to maintain a dual database, that they not have any personal information, like Social Security numbers, data of birth and all of that kind of stuff."
It is to the loan officer's benefit to negotiate who owns the information in the database if the employment relationship ends.
"That's why I feel that the employment contract
Pickel agrees that spelling things out in a contract could help to avoid the legal battles. But there is a limit to what a contract can specify, especially when it comes to noncompete clauses, some of which include trying to limit contact with past clients.
"Judges don't like to rule against the right to work. You can't prevent someone from making a living," Pickel said. "If your contract is so narrowly construed, it will get thrown out."
