What can you do to protect your company secrets when Angela, your vice-president of sales, announces she is leaving your company and going to work for your competitor? Is there a way to keep Angela from telling her new employer all about your customers’ preferences, your company’s proprietary pricing, or the new business line you are exploring?
Truthfully, the day Angela announces her resignation is way too late to adequately protect your company’s most important secrets. Your efforts to safeguard your formulas, recipes, passwords, marketing plans, customer lists or other information you would like to keep confidential should have started before Angela was even hired.
There is no time like the present to begin taking at least four concrete actions if you value your business secrets:
- Physically protect your confidential information. Remember the urban myths that the secret recipe for KFC chicken or the formula for Coca-Cola were locked in a safe somewhere in company headquarters? According to Fox News, those are actual precautions taken by these companies. “The recipe [for Coca-Cola] lies in a vault in a downtown Atlanta SunTrust Bank vault and only two executives at a time have access to it.” As for KFC: “’Colonel Harlan Sanders’ Original Recipe eleven herbs and spices are inscribed in pencil on a yellowed piece of paper inside a Louisville, Kentucky safe’, says KFC spokesman Rick Maynard. ‘The safe lies inside a state-of-the-art vault that is surrounded by motion detectors, cameras and guards.’” Corporate espionage and theft of trade secrets is big business these days. These two food companies are serious about safeguarding their trade secrets. Are you as careful with yours?
- Do you at least have good password procedures, firewalls and cyberthreat protection, files marked “confidential”, inventories of your laptops and other equipment, and limitations on which employees have access to the keys to your business kingdom?
- Do you teach your new employees what information is confidential, how to protect it, remind employees frequently about their confidentiality obligations, and take immediate action if there is any breach in confidentiality?
- Do you prevent employees from downloading company documents onto flash drives or leaving the premises with your files?
- If you don’t take serious measures to protect your trade secrets, you really shouldn’t expect your current or departing employees to care either. Plus, the new Texas Uniform Trade Secrets Act doesn’t even recognize information as a trade secret unless the owner can demonstrate that the business has taken reasonable measures to keep the information secret. So without active measures to protect the secrecy of your proprietary information, you are helpless in the courts when your secrets are stolen.
- Have every employee sign a confidentiality policy or agreement. Texas common law says that former employees have a duty to refrain from the use of confidential information or trade secrets learned from their employer during the course of their employment. This common law, however, provides weaker protection than your secrets may need. Employees who are leaving the company rarely know that they have this duty and it is very difficult to gather convincing evidence that it has been violated. It is preferable for you to have a written policy spelling out each employee’s duties of confidentiality in the company policy manual. Even better than that—have each employee sign a confidentiality agreement at the beginning of his/her employment that clearly covers the following:
- Employee’s duty to protect the company’s secrets;
- How the secrets must be physically handled and protected within the company;
- Use of the company’s email, internet, social media and network to safeguard the proprietary information;
- A notice required by the federal Defend Trade Secrets Act;
- Who owns the intellectual property developed during employment; and
- How the employee must protect these secrets once employment ends.
- Consider noncompetition agreements for key employees. A noncompete can help protect your secrets because your employee has thereby agreed not to work for your primary competitors—those who actually sell the same goods or services as you in your geographic area. However, noncompetes are complicated legal documents that must conform to specific statutes and many years of complicated court opinions. They are expensive to draft correctly, even more costly to “purchase” from your employee with adequate legal consideration for the rights being forfeited, and extremely exorbitant to successfully enforce. Therefore, noncompetes are only recommended for use with your most crucial employees who could seriously damage your business by leaving to directly compete against your company. The easiest and least expensive time to get a noncompete in place is at the time of hiring a new executive. But get your employment lawyer’s input on any noncompetition agreement you are considering because the law surrounding them is tricky and varies from state to state. For example, noncompetes with Oklahoma employees aren’t generally enforceable, because state law only recognizes noncompetes arising out of the sale of a business. But instead, you might be able to legally have an Oklahoma employee sign a non-solicitation agreement preventing her from stealing your clients or employees. Another example—under Texas law, lawyers can’t be asked to sign noncompetition agreements and physicians have to have a buy-out provision in theirs. So, kids, don’t try this at home–this is not something you should try to draft from an internet form.
- Take quick action when an employee resigns. Even if you didn’t take any of these wise precautions prior to Angela’s resignation, you still have a few action steps to consider:
- Immediately change Angela’s passwords and cut off her access to network.
- Get a snapshot of Angela’s computer before assigning it to someone else or just change out the hard drive so that you can have your IT professional determine if confidential information was copied or forwarded.
- Require Angela to participate in an exit interview, in which you make clear what equipment and information belong to the company, discuss the return of all company property and issue a reminder of her confidentiality obligation under Texas common law.
- If you know or suspect that Angela is going to work for a competitor, you don’t have to let her work out her two-week notice period. You can accept the resignation immediately and have Angela leave before she can threaten your company secrets any further.