Human Resources Articles
Confidentiality and Your Employees
No company wants to lose its valuable sensitive information to a competitor, potentially creating negative client situations and compromising future growth. The vigilant protection of company information is an issue that needs to be discussed with employees during their employment and, more especially, as they are leaving your employ. What practical and legal steps can you take to guard your company's secrets?
Start at the beginning
The best time to have an employee agree to confidentiality obligations is right at the time of hire. Managers (or HR professionals) should have employees sign a confidentiality agreement unless they have already signed a document with confidentiality provisions during the interview process.
At times, it may also be desirable for a company to require stronger post-employment restrictions, such as non-compete obligations, on a key hire. In most states, non-compete agreements are fairly routine. For example, in California, the conventional wisdom is that enforceability is limited—which is generally true. There is, however, some belief for enforcing agreements that do not actually prevent that restricted employee from earning a living within his or her field.
What are trade secrets, really?
The core of confidentiality obligations is the protection of trade secrets. While many states have statutes to help protect trade secrets, specific confidentiality provisions in the terms and conditions of employment re-enforce those protections, calls them to the employee's attention, and binds the employee to them using the employee's signature.
A trade secret may consist of any formula, pattern, device, or compilation of information which is used in one's business and which gives the employer an opportunity to obtain an advantage over its competition. Generally, a trade secret is a process, device, or information intended for continuous use in the operations of the business.
Trade secrets can include customer lists, pricing structures, business strategy, marketing plans, financial information, product development strategy, intellectual property, current and anticipated research and development, and inventions. Following are some questions that should clarify if you're not sure if some information, a device, or a formula constitutes a trade secret:
- Is the information known outside of the employer's business?
- Is the information known by employees and others involved in the business?
- What measures does the employer take to guard the secrecy of the information?
- What is the value of the information to the employer and to the competitors?
- What is the amount of effort or money expended by the company in developing the information?
- How easily or readily could the information be obtained by a competitor through an independent source?
Note that trade secrets need not be technical in their nature. Market-related information and documents may be deemed to be trade secrets, and thus confidential.
Is a customer list a trade secret?
Though very important to every company, customer lists may or may not be considered a trade secret protected by confidentiality obligations. If the customer list contains specific customer information such as the key contact person, particular needs or requirements, or other information about customers that would be advantageous in the business but not publicly available, then such lists should be considered a trade secret and receive protection accordingly.
Some practical ways to protect corporate assets
Employers should disseminate to their employees a written trade secret policy that specifically identifies customer information, anticipated R&D projects, pricing, and other similar items as trade secrets. Most trade secrets are documented in some fashion, whether in paper files or computer disks. Here are some suggestions for keeping trade secrets:
- If it's a trade secret, label it! Mark confidential documents with the words CONFIDENTIAL or TRADE SECRET. But be selective. If all documents or files are labeled secret, even those that are not, the label may lose its effectiveness.
- Do not distribute confidential documents beyond the pool of people who need to see them.
- Securely store your documents and protect them from inappropriate access and disasters such as fire.
- Back up your computer information, and keep the duplicate files secure.
- Shred documents before discarding them.
- Erase boards and destroy flip charts after meetings.
- Collect all excess documentation after meetings.
With the increasing use of e-mail, intranets, and portals, companies also need to set up appropriate policies for technology security, including hardware, software, and data. Using firewalls to protect Internet access, employing reputable encryption programs on email, restricting access to servers, and developing sophisticated database security protocols are all valuable steps in ensuring that electronic copies of trade secrets are not deliberately or inadvertently released. Proper virus protection is also crucial to assure that critical documents are not damaged or destroyed.
In the era of telecommuting, too, be aware of the substantial risks posed by employees who take work home or work at home regularly. Employers should address this situation specifically in their confidentiality agreements and employee policies. As recent headlines revealed, even highly secure organizations like the CIA can be embarrassed by employees (even directors) who work on confidential matters on their home computers—with Internet connections offering potential access to hackers around the world.
When an employee leaves the company
If a Separation Agreement is executed at the time an employee leaves the company, confidentiality provisions can be included in that document. As a starting point, the agreement can repeat the confidentiality obligations included in the Proprietary Information and Inventions Agreement that the employee signed when first employed. The same areas can be covered: trade secrets, non-solicitation (of the company's customers and of the company's employees), and non-compete (to the extent enforceable in your particular jurisdiction). Confidentiality obligations can be modified to fit the particular circumstances of the employee's departure from the company.
If no separation agreement is signed at the time an employee leaves, only the confidentiality provisions previously agreed upon will apply, together with any statutory protections such as the general trade secrets protection and the specific patent and copyright laws. In these cases, TriNet recommends that you at least remind the employee of these confidentiality provisions and of your company's intent to seek enforcement thereof in court, if necessary.
If you have questions
Preserving trade secrets is an essential part of doing business and staying ahead of the competition. Have employees with access to vital company information enter into written restrictive agreements with regards to confidentiality, non-solicitation, and non-competition. Keep in mind that such restrictions must be reasonable enough so that the employee's ability to earn a living and use his or her expertise with another employer is not unduly hindered. Also, confidentiality agreements should specifically mention what information or activity is considered "off limits."