|
Protecting yourself from the departing (or more likely fired)
employee
Part One: Non-disclosure and confidentiality
agreements
By J.E. Barry Greve, Attorney
Board certified labor and employment attorney
Texas Board of Legal Specialization
While employees come and
go, what you don�t want is for that departing employee to go with your clients, pricing information or other confidential information and then use it to your detriment. This is the first of a two part series designed to help protect your company from none other than modern day piracy.
What is a non-disclosure or confidentiality agreement? Non-disclosure/confidentiality agreements refer to agreements that certain information possessed by an employee will not be disclosed outside the limits established in the agreement. Such information is generally confidential information, whether or not such information constitutes trade secrets.
Even without a non-disclosure or confidentiality agreement, trade secrets and confidential information may be protected under the common law of unfair competition. However, such agreements are very useful to establish and define trade secrets and to provide an additional, contractual basis for protection.
Non-disclosure/confidentiality agreements, unlike non-compete agreements (which will be discussed in Part 2 of this series), are not considered in restraint of trade, and are therefore more readily enforced by Texas courts. While Texas courts consider non-competition agreements a narrow exception to the public policy prohibiting agreements restraining free competition, non-disclosure covenants do not run against the grain of public policy. In addition, if there is an employment agreement with the employee, non-disclosure and confidentiality provisions are separable and may be enforced even if the noncompetition covenant in the same contract is not enforceable. As a result, businesses that heavily rely on trade secrets or confidential information look upon non-disclosure and confidentiality agreements as a preferable protective device.
What is a trade secret? Under Texas law, trades secrets are defined as follows:
�A trade secret may consist of any formula, pattern, device, or compilation of information which is used in one�s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods (i.e., a machine or formula for the production of an article�.
The following types of information have been held to be �trade secrets� by Texas courts based on the facts of the cases before them: customer and client lists; customer order information; buyer contacts; vendor information; bidding systems; business forms; marketing plans and strategies; training and service manuals; pricing information and even fudge recipes.
To constitute confidential information or trade secrets, sufficient secrecy is required to confer an actual or potential competitive advantage. You must make some effort to maintain the secrecy of the information. Information widely known or easily ascertainable does not constitute a trade secret or confidential information.
What constitutes trade secret misappropriation: In addition to the contractual protections provided to employers who use a non-disclosure agreement, trade secrets are also protected under the common law from misappropriation.
Trade secret misappropriation occurs when:
(1) the employer�s �trade secret� was disclosed to the employee in confidence;
(2) the employee used the secret without authorization; and
(3) the use caused the employer to sustain damages. Where a misappropriation is found, remedies include an injunction preventing disclosure, monetary damages or criminal sanctions against the employee. Compensatory and punitive damages may be obtained by the employer for misappropriation. More significantly, under the Texas Penal Code, misappropriation of trade secrets is also a third-degree felony. The wise employer will be sure to inform their departing employees of this little known fact so as to discourage them from using your confidential client and pricing information.
How to protect your trade secrets? Step 1 - identify all possible trade secrets. Step 2 - label such information in writing as �confidential information� and �property of��� and adopt policies to the effect that all internal information is confidential whether labeled or not and should not be copied, disclosed or disseminated outside the company. Step 3 - communicate with your employees that such information is confidential information belonging to the employer and is not to be copied, disclosed to other employees or to anyone outside the company. Step 4 - have all employees who have access to the information sign nondisclosure and confidentiality agreements as well as any third party who may have access such as consultants or independent contractors. Step 5 - control access to information both within and without the company on a �need to know� basis. Step 6 - inventory all confidential information as to its location and document the measures taken to protect against its disclosure including a list of persons with access to such information.
A well drafted
non-disclosure/confidentiality agreement can be an invaluable tool to protect an employer�s trade secrets, customers and confidential information.
Barry Greve is located at 1201 W. Arbrook � Suite 121, Box 960, Arlington, Texas 76015, or call him at 214-232-4266, e-fax 866-489-9041 or e-mail to
[email protected].
|
