Protecting Business Secrets

           Would you be willing to publish in the newspaper the financial details of your company, the identity and special needs of your customers, the formulas for your products, the marketing studies you have done, the specialized training you have created, and your business plans for all your competitors to see?

            Probably not. But if your competitors hire your former employee who has all that information about your business in his head or on a jump drive, similar damage can be done. Your business can also suffer if an employee starts her own business in competition with you using all that information.

            Fortunately there are ways that you as an employer can protect your confidential business information and trade secrets when knowledgeable employees leave your company. You can require an employee not to interfere with your business by prohibiting his recruitment of your employees when he leaves. You can also restrict a key employee from competing against your business by having him sign a covenant not to compete.

            Trade secrets such as custom technology, formulas, and business plans that are sufficiently valuable, difficult or expensive to develop, give you a competitive advantage, and are kept confidential within the company are protected under Texas law from being revealed by employees or former employees. You are not required to get a copyright, trademark or patent on these valuable ideas and documents that make your company competitive.

            However, in order for the courts to protect your trade secrets, you must make some effort to keep them secret. One of the best way to do that is to place a policy in your employment handbook that defines what kind of information in your company is confidential and require that it be kept secret by employees during their employment and afterwards. Then be careful that this information is not used in your advertising, marketing materials, or customer presentations.

            If you take these precautions to keep your secrets secret and an employee uses them in a manner that is damaging to your business, you can seek an injunction to stop her, you can sue for misappropriation of trade secrets and in some cases, even file criminal charges.

            Don’t get the idea, however, that your former employees cannot use the general knowledge, skills and experience they have gained working for you when they go to work for your competitor. Texas protects the right of the employee to make a living doing what they know how to do best, even if it is for a competitor, as long as the employee is not using your trade secrets to compete.

            Texas law does allow an employee to give up that right of freely using his skills in the open market if he is given a sufficient incentive to sign a carefully-drafted written agreement not to compete with his employer.

            Noncompetition agreements are tricky and you should never use one that has not been carefully scrutinized by your employment attorney. I have seen so many agreements that an employer has “borrowed” from another company or downloaded from the Internet. None of these is enforceable in Texas and so not worth the paper they are printed on.

            Even Texas employment lawyers can’t give you a guarantee that the agreements they write will hold up in court because this is a very volatile area of Texas law and one appellate court opinion can completely change the enforceability of these agreements. But you have a better chance of getting an enforceable agreement from a Texas lawyer than from the web.

Texas law is very particular in the area of noncompetition agreements. For example, Texas law requires that the employer give the employee valuable consideration for giving up his right to compete, such as unique and valuable training or the right to keep his job unless he is fired for good cause. Just putting the employee to work as an at-will employee is not enough.

            The noncompetition agreement must also be limited in time and geographical restrictions. It would be unusual for a Texas judge to enforce a covenant not to compete that requires the employee to sit out of the game for more than 2-3 years or stay out of a sales territory where you don’t do significant business anyway.

            The agreement must also be “ancillary to an otherwise enforceable agreement”. This is a murky concept, but you should be okay if you agree to provide your employee specialized training and additional job security, such as a contract to terminate him only for “good cause”, thereby giving up your employment-at-will rights.

Clearly the written covenant not to compete requires the employer to sacrifice to get the employee to give up the right to compete. Therefore, this kind of agreement is recommended only for key employees who are instrumental in making you competitive and have access to vital company information.

            For the rest of your employees, your trade secrets and business goodwill  will be well protected if you will:

·         Hire well by conducting extensive interviews and background checks;

·         Retain valuable employees by offering good benefits and other incentives for them to remain loyal to you;

·         Educate your employees about their duty to protect your trade secrets both during and after employment; and,

·         Control your confidential information carefully so that it remains secret.

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