Protecting Trade Secrets From Use by Former Employees

Companies commonly spend substantial resources in developing information that allows for profitable operation. Valuable information may take many forms, such as customer lists, pricing formulas, product specifications and business plans. A challenging problem that must be addressed by any employer is how to protect those trade secrets from being used by former employees after they leave to work for a competitor.

Like most states in the United States, California has adopted the Uniform Trade Secrets Act (“UTSA”), found at Civil Code sections 3426.1-3426.11. Under the UTSA, if a company takes reasonable measures to protect its information, and if steps are taken to maintain the secrecy of the information, California Courts will protect the information as a trade secret.

The protection afforded to trade secrets under the UTSA is not limited to recorded versions of information, such as documents or electronic data. In California, it is not a requirement that an employer establish that the employee physically took trade secret information. Rather, the UTSA also affords protection of the contents of an employee’s memory. Therefore, the misappropriation of a trade secret can be shown simply by establishing that the employee used or disclosed the content of his or her memory regarding a trade secret.

The most prudent approach for an employer is to minimize the risk of loss of trade secrets by taking all reasonable measures available to protect the trade secrets. The measures taken by the employer should include:

• Use a confidentiality agreement that is signed when an employee is hired. The agreement should clearly state that the employee will come into possession of company trade secrets and that the trade secrets are not to be disclosed both while employed by the employer and after the employment ends. If possible, list specific items that are deemed trade secrets, such as customer lists, pricing information and business strategies.
• Update the confidential agreements on an annual basis to include any new areas of important information and have the employees sign a confidentiality agreement on an annual basis.
• Have detailed internal policies regarding the use of electronic storage devices, internet use, and use of the company’s email system.
• Have secured networks with limited employee access with firewalls, multi-character passwords, or other ways to limit access or to track employee network activity.
• Conduct exit interviews with all departing employees and remind them of the confidentiality agreements they signed and attempt to obtain signed confirmation from the departing employee that they received and agreed to the confidentiality agreements.

In summary, the best way to avoid protracted and expensive litigation against a former employee for the misappropriation of trade secrets is to protect the information before the employee leaves.