Use Employment Agreements to Protect Trade Secrets

Employee brain power is often the most important asset a company can draw upon. This includes everything from the accumulated knowledge of company procedures, policies and basic operations to very specific and valuable facts about proprietary products and services and important customer information. In today’s digital marketplace, the loss of one or more key employees who have been exposed to confidential company information can be devastating.

It is also a fact that employees switch jobs on a regular basis, especially in the software and e-commerce fields. New opportunities and information about new opportunities abound. Many employers, knowing this fact, attempt to restrict employee mobility through non-competition and confidentiality provisions in employment agreements.

Various, states, however, treat these types of agreements differently. California employees cannot be required to agree not to compete upon termination of employment, for instance. Recent court rulings in California indicate that this rule covers “virtual employees” who work for a California company in a different state. Other states enforce agreements in varying manners and most states will not enforce agreements that are overly broad and too restrictive.

Ask new employees to sign a written confidentiality agreement upon hiring. Explain his or her rights under the agreement carefully. Determine what covenants are appropriate and what exactly is to be protected. Some examples include:

• Nondisclosure of trade secrets and confidential information?

• Noncompensation?

• Nonsolicitation of customers?

• Nonsolicitation of employees?

• A combination of all or some of the above?

Once an employee is on board, continue to take steps to define sensitive areas and to plan for inevitable employee departures

• Alert employees and third parties to the existence of trade secrets and their proprietary and confidential nature. This especially includes items like financial information and drawings.

• Remind employees, through newsletters and memoranda, of the confidential nature of their work.

• Limit access to confidential information to those who need to know.

• Impose reasonable security measures.

• Avoid public disclosure of alleged trade secrets.

Upon termination, act quickly but avoid the appearance of being overbearing. Conduct an exit interview and document the following:

• Obtain the name of the new employer and a description of the new job.

• Remind the employee of obligations and ask to acknowledge, in writing if possible, those obligations.

• Retrieve all company materials.

• Keeping in mind privacy concerns, thoroughly search the exiting employee’s workspace, especially his or her computer.

• After the interview,  send a follow up letter confirming any information, admonitions or restrictions.

• Determine if any restrictions apply, inform the employee, insist upon compliance, and monitor the risk.

The bottom line is that any restrictions must be narrowly tailored and clearly understood by all upon execution of any agreements, departure from a position and in any enforcement activities.