Application 2 – Annotated Bibliography

Management and Legal Issues Regarding

Electronic Surveillance of Employees

in the Workplace

David Halpern

Patrick J. Reville Donald Grunewald

ABSTRACT. Since the attack on the World Trade

Center in New York, and on the Pentagon in the

United States, concerns over security issues have been

at an all-time high in this country. Both state and

federal governments continue to discuss legislation on

these issues amid much controversy. One key concern

of both employers and employees is the extent that

employers, espousing a ‘‘need to know’’ mentality,

continue to expand their capability and implementation

of surveillance of employees in the workplace. With

the technology typically growing faster than the speed

of legislation, protective or permissive, the management

and legal issues involved in electronic monitoring of

employee communications in the workplace, are and

well should be on the agenda for discussion of every

management and legal team in American business

today. Companies have a legitimate right to protect

their trade secrets from disclosure by disgruntled

employees. Similarly, companies also have a duty to

protect their good names and reputations from unau-

thorized employee communications with outside par-

ties, and even other employees, that may damage them.

It is also a prime duty of management to ensure, in

their direction of their workforces, that the employees

execute their responsibilities by working full time on

their stated objectives. In this regard, any management

that fails to oversee its workforce to ensure that

employees are not expending valuable company time,

for which they are being compensated, on personal

business, including unauthorized communications, is

remiss in its responsibilities to its shareholders. The

company may see a reduction of the price of its shares

in the marketplace if it does not protect the economic

interests of its shareholders.

KEY WORDS: security issues, surveillance of employees

Legal analysis

Historical and current statutory authority

In 1986, the United States Congress passed into law

the Electronic Communications Privacy Act

(ECPA) 1 , commonly known as the Federal Wiretap

Act. This Wiretap Act was formerly known as the

1968 Omnibus Control and Safe Streets Act. Said

statute provides for criminal and civil sanctions for

‘‘any person who...intentionally intercepts, endeav-

ors to intercept, or procures any other person to

intercept ... any wire, oral, or electronic commu-

nication.’’ 2

In addition to said Federal law, virtually every

state has some sort of statute dealing with eaves-

dropping, wiretapping, and the like, setting forth

limitations and prohibitions on said activity, by

individuals, employers, and governmental authori-

ties. For purposes of this article, we will concentrate

on the Federal statute set forth above.

Of key interest is the concept of ‘‘intercept’’ and/

or what constitutes an ‘‘interception.’’ Intercept is

defined as ‘‘the aural or other acquisition of the

contents of any wire, electronic or oral communi-

cation through the use of any electronic, mechanical,

or other device.’’ 3

If an electronic communication

held in ‘‘electronic storage’’ is later examined, as

opposed to contemporaneously listened to while

happening, the courts have held that this in itself is

not an ‘‘intercept within the meaning of the prohi-

bition. 4

So when an employer copied the electronic

mail from an employee�s hard drive, it did not

Journal of Business Ethics (2008) 80:175–180 � Springer 2007 DOI 10.1007/s10551-007-9449-6

violate a statute prohibiting electronic interception

of personal telephone calls without a warrant, absent

proof that the employee�s electronic mail was obtained while it was being transmitted.

5 Yet, the

courts have also concluded that one does not have to

‘‘listen in’’ on a communication to constitute an

interception. 6

For the record, by the way, just what

is an ‘‘aural acquisition’’ of a communication?

Apparently, it simply means to come into possession

of same by use of the sense of hearing. 7

But, just

because someone comes into possession of an email

message by inadvertently seeing same on a computer

screen, this alone would not be a violation of

the statute, because there would be no unlawful

‘‘interception’’ under those circumstances. 8

The statutory exceptions

The ECPA as set forth above contains a number of

exceptions, including: (a) the ‘‘Business Extension’’

exception; (b) the ‘‘One Party Consent’’ exception;

and (c) an exception regarding the Employer pro-

tecting its Rights or Property. All three of these deal

with ‘‘permitted interceptions’’ of communications.

In addition, the ECPA allows for access to and

examination of (d) ‘‘stored’’ employee communi-

cations.

(a) The so-called Business Extension exception

allows interception of communications by an

employer when, as typically is the case, the tele-

phone, equipment, or facility is furnished by the

employer and used in the ordinary course of busi-

ness. 9

Thus, ‘‘listening in’’ may constitute an inter-

ception, but be at the same time exempt from

applicability of the general prohibition of the statute.

However, the statutory exception is narrowly

interpreted as to what is in the ‘‘ordinary course of

business,’’ so that a branch manager who used a

business extension to monitor an employee�s con- versation with a former employee, under a suspicion

that confidential business information was being

disclosed, fell within the exception, while recording

22 hours of employees� personal calls with a device purchased at an electronics store (not provided by

the telephone company) was held beyond the scope

of the ordinary course of business.

(b) The ‘‘One Party Consent’’ exception falls

under Sec. 2511(2)(d), which states: ‘‘It shall not be

unlawful...for a person...to intercept a wire, oral, or

electronic communication where one of the parties

to the communication has given prior consent to

such interception...’’ Obviously, then, a person who

records his or her own phone conversations with

another does not violate the law. (But what about an

employer claiming that employees have consented to

the employer intercepting/monitoring/recording

communications? It appears that the employer

should make it abundantly clear to the employees

that communications would be so monitored, as a

mere warning to employees that there may be

monitoring to cut down on personal use of the

telephones would not be enough to fall under

the consent doctrine. Advice to an employer: Get

the consent provision in writing, make it part of the

employee agreement, and even have said provision

separately acknowledged.

(c) Should not the employer be able to intercept

communications in order to protect its rights to

business trade secrets and the like? Sec. 2511(2)(a)(i)

answers in the affirmative, as long as it is ‘‘in the

normal course of his employment while engaged in

any activity, which is a necessary incident to the

rendition of his service or to the protection of the

rights and property of the provider of that service...’’

In U.S.A. v. Mullins), the 9th Circuit Court of

Appeals upheld and clarified the right of an

employer to so protect itself.

(d) Monitoring/retrieving stored communica-

tions, as set forth above, would not be considered

interceptions under the law. In addition, Sec. 2701

of 18 USC deals with unlawful access to stored

communications. This section generally makes it

unlawful to access communications in electronic

storage, but Sec. 2701(c)(i) contains an exception, in

that it expressly states that ‘‘Subdivision (a) of this

section does not apply with conduct authorized—(1)

by the person or entity providing a wire or elec-

tronic communications service.’’ As a result, as far as

communications stored on the employer�s equip- ment, there is no prohibition of access.

Recent case law

Since its enactment in 1986, there have been

numerous cases that have made their ways through

the courts, where litigants have attempted to receive

176 David Halpern et al.

interpretation of the prohibitions and exceptions set

forth above. Naturally, as indicated in the citations

contained herein, interpretations of terms under

prior statutory and case law have been helpful.

In Fraser v. Nationwide Mutual Insurance Company,

the United States Court of Appeals for the Third

Circuit recently dealt with some of the issues set forth

hereinabove. Fraser was an independent insurance

agent for Nationwide Insurance Company, and got

terminated by Nationwide. He sued for wrongful

termination under state law, and for damages under

the ECPA, claiming unauthorized access to his email

account. It was admitted by Nationwide that it had

accessed his email, and had found evidence of dis-

loyalty. The court, in citing the Steve Jackson Games

case, concluded that there could be no intercept of an

email in storage, as an email in storage by definition is

not an electronic communication. The court also

found that the email was stored on Nationwide�s system. The court took some issue with the lower

(District) court�s interpretation of what constituted ‘‘electronic storage,’’ but nevertheless affirmed,

concluding (a) that there was no interception, and (b)

the Sec. 2701(c) exception applied.

Legal conclusions

In dealing with the management issues set forth

herein, care must be given by management to bal-

ance its objectives of protection of property rights,

bolstering productivity and profitability, and main-

taining employee morale. In addition, management

must exercise care to comply with all relevant Fed-

eral and State laws.

In dealing with the legal issues, the conclusion

reached by the authors hereof is that employees face

an uphill battle in bringing actionable complaints

against employers regarding electronic workplace

surveillance activities, as long as management has

taken the care cited above in legal compliance. As an

employee, you must almost presume that Big

Brother is (legally) watching.

Management analysis

The ethical and managerial issues of what constitutes

good management practice with respect to the

activities of employers in using electronic surveil-

lance of employee communications, must balance

the competing interests of companies with that of

their employees.

Clearly, under the law, companies have a legiti-

mate right to protect their trade secrets from dis-

closure by disgruntled employees. Similarly,

companies also have a duty to protect their good

names and reputations from unauthorized employee

communications with outside parties, and even

other employees, that may damage them.

It also is a prime duty of management to ensure, in

their direction of their workforces, that the

employees execute their legal and ethical responsi-

bilities to work full time on their stated objectives. In

this regard, any management that fails to oversee its

workforce to ensure that employees are not

expending valuable company time, for which they

are being compensated, on personal business

including unauthorized communications or some

other private non-company related purpose, is remiss

in its responsibilities.

For example, if employees were using company

time to play computer games or to gamble over the

internet or to use the internet for non-company

purposes such as watching sports programs when

they should be working on company-related busi-

ness, these employees are in effect not meeting their

legal and ethical responsibilities to the company. If

such employee activities are taking place on com-

pany time, it might affect the productivity of the

company adversely to the detriment of the company

and its shareholders.

However, the question of how management is

best able to bring about and maintain expected

standards of worker productivity is a very complex

issue as it relates to questions of controlling and

monitoring employee communications on the job. It

seems to be clear, based upon the legal issues

discussed above, that management is permitted by

law, under a variety of circumstances, to monitor

employee communications in the workplace. Such

controlling and monitoring of employee commu-

nications is a complex managerial policy decision

that should take into account certain important cri-

teria and considerations.

Specifically, what type of corporate culture is

desirable and appropriate for a particular company is

a critical consideration with respect to monitoring

Management and Legal Issues 177

employee communications on the job. If a company

places a premium on a relaxed informal culture that

strives to encourage creativity and innovation among

its employees, then management must be very

careful with respect to instituting a policy of elec-

tronic surveillance of employee communications.

Implementation of such a new company policy

could have a very chilling effect in what was for-

merly a very open and relaxed atmosphere in the

workplace of the company. This new policy could

have very negative effects upon creativity and

innovation.

Under these circumstances, employees may resent

management�s ‘‘intrusions’’ into communications that they consider private and appropriate in the

workplace. Employees may then conclude that

management does not trust them anymore. If

employees under these circumstances begin to resent

and/or fear management, then an essential ingredi-

ent of creativity, namely, esprit de corps, may be lost,

resulting in a substantial diminution of creativity.

Presumably, companies that are on the forefront

of technological innovation as well as firms in cre-

ative fields such as advertising, marketing, and

entertainment, would be examples of companies that

place very high demands upon the creativity of their

employees. From a management perspective, even

though electronic surveillance of employee com-

munications would be legal, such surveillance might

be quite counterproductive for such companies to

institute a policy of monitoring employees� com- munications without much discussion with the

employees.

The more complex issue from a management

perspective is whether to institute a policy of

monitoring employee communications in compa-

nies that do not place a premium on creativity and

innovation. One could assert that management

should institute such a policy if doing so would

improve employee productivity. This requires a

judgment call by management, who may be

influenced by the past practices of employees

regarding their communications practices at work.

If management has been lax in this area, resulting in

abuse by employees of company communication

privileges with respect to their interactions, it might

be appropriate for management to institute a policy

of surveillance of employee communications at

work.

Such managerial decisions should probably not be

predicated solely upon an ‘‘abuse test.’’ It may be

appropriate in some cases for management to insti-

tute a policy of surveillance of employee commu-

nications in the absence of any evidence that

employees have abused company time and property

to engage in unauthorized communications of a

personal nature. Despite the absence of evidence of

such abuses, management may still want to institute a

policy of surveillance of employee communications

where, in the judgment of management, this policy

would make the employees more efficient and, thus,

hopefully more productive.

One way for management to introduce such a

new policy of surveillance of employee communi-

cations would be to begin by conducting open and

transparent studies of employee communications

practices in their firms, which will demonstrate to

employees the necessity of instituting ongoing

practices of surveillance of employee communica-

tions to increase efficiency.

Specifically, if the result of such a company study

by productivity experts clearly demonstrates to the

employees that instituting such a policy will improve

efficiency and productivity, then it may be much

easier for management to convince employees that

such a policy of surveillance of employee commu-

nications is both ethical and fair to all concerned.

In theory, employees should have a definite

interest in improving productivity in their company,

because this would hopefully improve profitability.

If the company will become more profitable, then

wise management will share these increased profits

with employees in the form of higher compensation.

Instituting a policy of surveillance of employee

communications after a careful efficiency study as

indicated above, may serve another very important

purpose. If a logical rationale can be advanced by

management as to the propriety and necessity of

employee communication surveillance to improve

productivity, then employees may not view such a

new policy as either arbitrary or punitive in nature.

This is critical, because if employees understand that

such a policy is not being instituted to harm them, or

because the management does not trust the

employees, but instead to benefit all the company�s stakeholders, then this may help serve to prevent any

potential negative effects, such as a diminution of

morale or increase in employee turnover. Perhaps

178 David Halpern et al.

such a new policy, could be shown to be a win for

management in the form of higher productivity and

resulting higher profitability and a win for the

employees in the form of higher compensation, and

possibly greater job security, because the company

would be financially healthy and presumably less

willing to eliminate jobs to save on costs.

Support of the workforce will help make the

policy more effective than, if the advantages of the

new policy are not clear to the workforce who

might then oppose or obstruct the new policy. This

is why, the proposed new change in policy needs to

be discussed with employees and their feedback

encouraged to make sure that the new policy will be

fair to all concerned and will be effective when it is

instituted. The policy should also be instituted only

after public notice to all concerned.

In developing and implementing a policy of

employee communication surveillance, management

should be careful to abide by, the dictates of all

applicable Federal and State statutes, once the deci-

sion is made to implement the new policy so as to be

able to defend the company against potential

employee litigation in this area.

As cited above, company practices in this area

must make a very clear distinction between moni-

toring employees� communications, which constitute interceptions and in gaining access to communica-

tions already in electronic storage, both of which are

impermissible under the Electronic Communications

Privacy Act of 1988 (ECPA), unless said practices fall

under statutory exceptions. The authors recommend

that management should make company policy with

respect to employee communication surveillance a

condition of employment and should require that all

employees sign a written waiver to this effect to

comply with the dictates of the ECPA, as discussed in

the legal section of this paper, if it decides to adopt

such a new policy of surveillance of employee

communications.

Before a new policy of surveillance of employee

communications is instituted by management, it

should carefully vet the wording of such a new

policy with the company�s legal department and/or outside legal counsel to ensure that the policy

complies with all of the statutory requirements as

discussed in the legal section of this paper above.

Conclusions

In dealing with the managerial and ethical issues set

forth in this paper, care must be given by manage-

ment to balance its objectives of protection of

property rights, bolstering productivity and profit-

ability, and maintaining employee morale. In addi-

tion to balancing these objectives, management must

exercise care to comply with all relevant Federal and

State laws regarding surveillance of employee com-

munications.

In dealing with the legal issues involving a policy

of surveillance of employee communications, the

conclusion reached by the authors of this paper is

that employees face an uphill battle in bringing

actionable complaints against employers regarding

electronic workplace surveillance activities, as long

as management has taken the care cited above in

legal compliance. Employees must almost presume

that Big Brother is (legally) watching.

Notes

1 18 U.S.C. § 2510 et seq.

2 18 U.S.C. § 2511 (1) (a)

3 18 U.S.C. § 2510 et seq.

4 Steve Jackson Games Inc. v. U.S. Secret Service,

36 F. 3d. 457 (5th Cir. 1994). 5

U.S. v. Simons, 29 F. Supp. 2d. 324 (E.D. Va.

1998), aff�d in part, remanded in part, 206 F. 3d. 392. 6

George v. Carusone, 849 F. Supp. 159 (D. Conn.

1994). 7

Smith v. Wunker, 356 F. Supp. 44 (S.D. Ohio

1972). 8

Wesley College v. Pitts, 974 F. Supp. 375 (D. Del.

1977), aff�d, 172 F. 3d. 861 (3rd Cir. 1998). 9

18 U.S.C. § 2510 (5) (a). 10

Briggs v. American Air Filter Co. Inc., 455 F.

Supp. 179 (N.D. Ga. 1978) aff�d, 630 F. 2d. 414 (5th Cir. 1980). 11

Deal v. Spears, 980 F. 2d 1153 (8th Cir. 1992). 12

U.S. v. Hodge, 539 F. 2d. 898 (6th Cir. 1976). 13

Deal v. Spears, infra. 14

992 F. 2d. 1472 (9th Cir. 1993), cert. denied, 510

U.S. 994 (1993). 15

352 F. 3d. 107 (3rd Cir. 2003). 16

Steve Jackson Games, infra.

Management and Legal Issues 179

David Halpern

Management,

Iona College, Ph.D., New York University,

New Rochelle, NY, U.S.A.

Patrick J. Reville

Business Law,

Iona College, J.D., Fordham University,

New Rochelle, NY, U.S.A.

Donald Grunewald

Strategic Management,

Iona College, D.B.A., Harvard University,

New Rochelle, NY, U.S.A.

E-mail: [email protected]

Donald Grunewald

5 River Road #307, Wilton, CT, 06897, U.S.A.

180 David Halpern et al.