Five Tips for Protecting Your Company’s Trade Secrets
by David Barron/ CozenO’Connor
Protecting your trade secrets and proprietary information is a vital part of your business. Every company needs to have policies and agreements in place to prevent employees from stealing property, and wrongfully soliciting your employees and customers when they leave to work for a competitor. Equally important, you must ensure that newly hired employees understand their own obligations to past employers and do not take actions that may unwittingly expose your company to liability.
When hiring a new employee (especially in management or sales), consider including language in the offer letter affirming that the employee has disclosed any restrictive covenants in effect from prior employers, and acknowledging that he/she will not bring any confidential documents, data, or information from previous employers to the company. Such language may protect the company from being sued if a new employee fails to disclose a restrictive covenant, or otherwise engages in a breach of duties owed to a prior employer.
If you are considering hiring a group of employees from a competitor, negotiate with each one separately wherever possible. In many states, employees (especially managers) owe a duty of loyalty to their employer. Acting as a go between or actively soliciting for a competitor while still employed with the prior company could raise legal issues. If you are looking to hire a team or group, it is best to hire the point person first, then once aboard that person can set out to recruit the remaining employees to come to your company (assuming that employee has no contractual restrictions on solicitation).
Develop a protocol for ensuring that high level departing employees do not download or otherwise misappropriate proprietary information. When notified of a resignation: (1) Conduct a review of work email for transmittal of information to personal email accounts; (2) Identify any suspicious use of removable USB devices; and (3) Conduct an exit interview that consists of asking the employee to affirm that all property has been returned, including all electronic devices and passwords.
Handbook policies on confidentiality and the return of company property are appropriate, but a breach of a policy is not actionable, and does not entitle the company to injunctive relief (i.e. an order requiring compliance). Consider requiring a confidentiality agreement for any employees who have access to important company data or property that could be harmful if disclosed to a competitor, and you may want back if not returned.
For key personnel, you may need more than a confidentiality agreement to protect the company’s interests. In those cases, consider the use of a non-compete and/or non-solicitation agreement (which can be coupled with the confidentiality portion into one document). A non-compete provision restricts the employee from working for a competitor for a certain period of time in a defined geographic area. Such covenants must be reasonable, and narrowly tailored to protect the client’s interests. A non-solicitation provision does not restrict the employee from working for a competitor, but restricts certain activities for that competitor, usually soliciting company customers or employees for a period of time. Like a non-compete provision, a non-solicitation covenant must be reasonable. For example, the restriction should only apply to customers with whom the employee actually had contact or access to confidential information, as opposed to a restriction from contacting all of the company’s customers.
Non-compete litigation is state specific and the laws can vary widely from state to state. For example, Texas allows reasonable restraints on competition, while California (and recently Massachusetts) outlaw such agreements. It is advisable to have any agreements reviewed for enforceability in the states where such agreements are likely to be enforced.