Emerging issues affect how to handle trade secrets

In recent years, how employers handle trade secrets and other confidential information has become more complicated.

The Defend Trade Secrets Act took effect in 2016. DTSA gives employers that believe their trade secrets have been stolen an avenue to prevent their misappropriation through the federal courts.

Before the law was enacted, employers were limited to state law claims under a version of the Uniform Trade Secrets Act or UTSA (in 48 states and the District of Columbia) or common law (in New York and Massachusetts).

Now comes a new wrinkle: In April, the U.S. Department of Justice announced plans to file criminal charges against employers that collude to fix wages or not hire one another’s workers under “nonpoaching agreements.”

As a result, employers are more likely than ever to either have their trade secrets compromised or face liability for knowingly or unknowingly possessing a competitor’s confidential information.

Employers need to review their policies on handling trade secrets throughout the recruiting, hiring and employment processes. Developing a framework for identifying different types of confidential information and having protocols in place for each type can help limit employee liability.

Note: Even employers that worry about the need to protect their confidential information may not be as attuned as they should be to the other side of the coin. Employers cannot turn a blind eye to proprietary information or trade secrets new employees bring with them.

Employers’ DTSA protection

For employers that believe their trade secrets have been stolen, DTSA allows employers to order a trade secret seizure. The DTSA limits injunctions employers can bring against former employees.

DTSA also provides employer protections against trade secrets being revealed in court proceedings. Employers that do not include a notice of immunity that allows employees to reveal trade secrets to government officials during criminal or civil investigations cannot seek double damages and attorney fees when suing employees or independent contractors for confidentiality breaches.

What constitutes a trade secret?

Not all information is created equal. Trade secrets are a subset of confidential information. They are not generally known to the public or competitors. They may include manufacturing processes, business plans or customer lists.

Employee and customer data with identity theft ramifications are also confidential information.

Employers should identify each kind of trade secret they possess and have a protocol for it. Examples: Some information should not be downloaded onto devices that may leave the workplace. Some information should not be via email attachment or may go only to lists of approved recipients.

Best practices

Consider requiring every new employee to sign a nondisclosure agreement. Depending on the situation, employers may wish to make the agreement part of an employment contract. It can also be included in contracts with independent contractors. Consult your attorney to draft all contracts and nondisclosure agreements.

Conduct a training session on trade secrets and confidential information shortly after new employees come on board. Discuss the proper way to handle proprietary information.

To effectively manage legal exposure for misappropriation of trade secrets and confidential information, consider consistently taking the following steps when hiring new employees who previously worked for a competitor:

  • Ask those you are offering a job if they have signed a confidentiality, noncompete or nonsolicitation agreement with their current employer. If they did, review that agreement to determine its impact.
  • Instruct all new hires to comply with the terms of any confidentiality, noncompete or nonsolicitation agreements with their prior employer. Tell them not to bring with them or use any confidential or trade secret information of the former employer. For maximum protection, put these instructions in writing and get the new hire’s signature to acknowledge receipt.
  • Promptly investigate and remedy any concerns that may arise about the improper possession or use of trade secret and confidential information by your employees.
  • Implement serious discipline (including possible termination) for offending employees.

Protect secrets on termination

When employees leave the company, employers should have a protocol in place to determine if any trade secrets or confidential information have been compromised.

In exit interviews, remind departing employees of the company’s policy, the employees’ obligations under employment contracts and nondisclosure agreements and the employees’ liability for revealing confidential information.

The exit protocol should also include a scan of the employees’ computers to determine if any confidential information was downloaded or otherwise disseminated.

Training is the key

Under a successful confidential information policy, each employee understands the limits of disseminating each piece of information he or she encounters. Involve your attorney in crafting agreements and protocols to ensure they provide the greatest employer protection and comply with all pertinent state and federal laws.