Fraser v. Nationwide Mut. Ins. Co.: Company Can Access Independent Contractor's E-mail Account

A federal appellate court has considered whether a company who provides an e-mail account stored on its servers to an independent contractor has the right to access the independent contractor's e-mail account.

Richard Fraser ("Independent Contractor") was an independent insurance agent for Nationwide Mutual Insurance Company ("Company"). In April 2, 1998, the Company terminated the "Agent's Agreement" between the Independent Contractor and the Company.

The Independent Contractor argued that he was terminated because he had reported the Company to the Pennsylvania Attorney General's office for its allegedly illegal policies of refusing to sell insurance on an equal basis to all qualified individuals (the Company eventually paid fines to the state for these policies and the Attorney General wrote a letter thanking the Independent Contractor for his actions) and also because he had criticized the Company while serving as an officer for an association representing the Company's independent insurance agents ("Association"). The Company argued that it terminated the Independent Contractor because he was not loyal to the company, as he had drafted letters to some of the Company's competitors inquiring about their interest in acquiring the Association member's Company policyholders.

The Independent Contractor filed a lawsuit alleging wrongful termination; seeking damages from the Company for its unauthorized access to his e-mail account; and challenging an administrative review process conducted following his termination. The trial court entered judgment in favor of the Company, and the Independent Contractor appealed.

The United States Court of Appeals for the Third Circuit affirmed most of the rulings by the trial court. The court examined the allegations made under the federal Electronic Communications Privacy Act ("Act") and a comparable state law for the Company's review of the Independent Contractor's e-mail. The Act allows an individual to recover damages for violations of the Act. The Company provided the Independent Contractor an e-mail account which was hosted on the Company's servers. The Company had decided to review the Independent Contractor's e-mails to determine if the Independent Contractor had exhibited further disloyalty to the Company in any e-mails he may have sent. The Company's General Counsel determined which e-mails to review by looking at the e-mail headers (To:, From:, RE:), selecting any e-mails where the headers contained any relevant information.

Title I of the Act prohibits "intercepts" of electronic communications, such as e-mail. The Company argued that it did not "intercept" the Independent Contractor's e-mail, as it did not review his e-mails at the time of transmission but rather at a later date. The court found that an intercept must occur at the time of transmission, and thus the Company's actions did not constitute an intercept and so the court affirmed the dismissal of the Title I allegations.

Next, the court considered the allegations under Title II of the Act. Title II imposes penalties upon anyone who: (1) intentionally accesses without authorization an electronic communication service; or (2) intentionally exceeds an authorization access to an electronic communication service and obtains, alters, or prevents authorized access to an electronic communication (like an e-mail) while it is in electronic storage. The trial court had determined because the Independent Contractor's e-mails were never in the type of electronic storage described in Title II, this section was inapplicable to the Independent Contractor's e-mails. The court found that it was unnecessary to even make such a determination, as the court found that an exception to Title II exists for the entity who provided the e-mail service. Since the Company provided the
e-mail service to the Independent Contractor through its servers, the court ruled that Title II did not apply to the Company and so Title II did not bar the Company's search of the Independent Contractor's e-mail.

The court considered the remaining allegations. First, the court ruled against the Independent Contractor on his wrongful termination allegations, in which he had argued that public policy prevented the company from terminating him for his leadership in the Association and his reporting of the Company's failure to comply with the law. The court found that the public policy exception was very narrow, protecting employees from termination who refused to perform an illegal activity and did not address individuals who were the independent contractors. Second, the court found that there was no evidence to support the Independent Contractor's allegations that the Company had participated in bad faith in the post-termination administrative review process, and so affirmed the trial court's ruling on those allegations as well. Finally, the court remanded the Independent Contractor's challenge to a contractual provision addressing forfeiting future commissions, as the trial court needed to evaluate this challenge in light of a recent ruling by the court. Thus, the court affirmed most of the rulings of the trial court in favor of the Company, except for one count which the trial court needed to reconsider.

Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107 (3d Cir. 2003).