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Protecting your trade secrets when employees leave

Employee trade secret theft is becoming a serious threat for employers, as evidenced by the increasing number of cases before the courts dealing with such conduct.

Often the problem could have been avoided by forward planning by the employer. It is wise to have an action plan in place to avoid what could be catastrophic damage to a business.

To protect trade secrets you need to identify what they are, as not everything is a trade secret. You need to understand what a trade secret is and to make an inventory of your trade secrets so there is no misunderstanding about what is being protected. Guidance can be taken from what court decisions have classed as trade secrets.

An employer should take steps to limit staff exposure to trade secrets on a “need to know” basis. Employees with access to trade secrets should be asked to sign a confidentiality agreement in which they:

  • acknowledge receipt of the confidential information;
  • agree to keep the information confidential;
  • agree to return all confidential information when they leave the employment;
  • agree to inform the employer of details of their new employer and to advise the new employer about the confidentiality agreement;
  • agree that the employer can provide a copy of their confidentiality agreement to any new employer;
  • agree that the employer can arrange for forensic analysis of their devices, such as computers and phones, when their employment ends; and
  • acknowledge that irreparable harm would be done if they breach the confidentiality agreement.

An employer should also enter into non-compete and non-solicitation agreements with employees who could damage their business by taking confidential information, customers or other employees with them when they leave. These agreements need to be carefully drafted to ensure they protect the employer’s legitimate interests and that they take into account the employee’s role in the business. An agreement that is drafted too widely may be legally unenforceable.

An employer should also regularly reinforce to all employees, and particularly employees who deal with confidential information, the importance of keeping it confidential. This will ensure the employees are aware that any breach will be strongly pursued by the employer.

When an employee leaves employment, an exit interview should reinforce the employee’s post-employment legal obligations.  The employer should also check that all confidential material has been returned and enquire about the identity of the new employer.

The employee’s legal obligations should also be confirmed to the employee in writing to stress they must keep confidential information confidential and, if applicable, not to compete or solicit. This has the added advantage that the employee cannot claim ignorance of legal obligations if there is written evidence they have been informed on ceasing employment

Ideally, the employer should perform forensic analysis on computers and other devices of exiting employees who had access to trade secrets to determine whether prohibited conduct occurred.

Taking these steps will not guarantee protection from employee trade secret theft but it will keep problems to a minimum and lessen any harm that could occur.

For more information, please contact Margaret Miller, Partner in our Litigation and Dispute Resolution department.