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Avoiding Trade Secrets Litigation: Hiring New Employees

Many companies hire employees that have gained experience at competitors. In fact, it is fairly standard; and there isn’t anything wrong with that practice. After all, employees are generally able to take their knowledge, skills, and experience with them when they leave one company for another, and companies often want to hire people with that experience.

Trade Secrets problems often come when an employee brings documents or files with them from their prior employer. It is usually not anything as nefarious as an employee secretly downloading documents the night before they resign under the cover of darkness, though that does happen from time to time. The most common scenario is that an employee, working for a company, saves some work, reference materials, contacts or customer lists, etc. on a hard drive or their personal laptop to work on from home, or while they’re travelling. It is intended to help them in their work for their company—long before they contemplate moving to another company. It may even “technically” be against the company policy, but the documents are used to assist the employee in furthering the work of the company, so no further thought is given.

Then, sometime later, that employee leaves the company for your company, a competitor. That employee likely has documents on external hard drives, in e-mails, or on a personal computer that the former company may consider proprietary, or even a trade secret. The employee may even promise that he is not bringing anything over but doesn’t think about the reference documents he created while employed at his prior company sitting on his personal computer. The employee doesn’t think about the listing of specs of different products from several market competitors he had from his former company. Or, the employee doesn’t think about the contact list he has because he is friendly with the customers and will want to contact them in advance of the next conference.

Now, the stage is set for lengthy, expensive litigation. So, how can you avoid it?

First, when hiring a new employee, make your intentions clear verbally and in writing that you do not want the new employee to bring anything to your company. Making sure that the employee understands, “We want you and we don’t you to bring anything with you.” This ensures there is no miscommunication about you and your company’s intentions. Include that statement in e-mails before, during, and after he is hired. Don’t embed it with a series of other information about insurance forms, parking passes, etc. This is important enough that it deserves its own dedicated e-mail.

Second, find out if the new employee has any Non-Disclosure or Non-Compete Agreements with any prior employers. Some states, such as California, consider an employee’s knowledge about proprietary processes to be a trade secret, even if it is not in writing and only in their memory. But the employee should have some knowledge of what he can not disclose to other employers. Some companies ask employees, in their exit interviews, to sign confidentiality agreements or non-disclosure agreements. Ask your new employee if he was asked to sign any agreements before he left. It may seem like you are prying into their business, but once litigation is filed, it quickly becomes your and your company’s business. It is better to avoid any problems on the front end.

Finally, remind your employees, even those who are not new, that you do not want them to use other companies’ proprietary information. A periodic e-mail from someone high enough in the company to get noticed should suffice. Many companies will offer sales or pricing information to their customers through e-mails or through websites, but those e-mails and websites likely have statements that the information is proprietary and “is intended for the use of the recipient only.” Customers may also offer to give your employees this information to help you better price your products or to allow you to match your competitors’ prices. This practice can be tricky and loaded with potential for danger. The particular scenario, including the jurisdiction, matters as to how best to handle this. The best practice may be to ask the customer to tell you product by product what price they can get somewhere else and ask if you can beat that price. A customer is generally allowed to bargain-shop.

Instruct your employees that they are only allowed to view information they are able to get on their own from the internet. Obviously, if your competitor posts information on their website—in a publicly available manner—without requiring a username or password, your employees have free rein to use that information in any way.

Keeping aware of potential openings to trade secret litigation won’t necessarily prevent your company from being brought into it, but you will have done your best to prevent it.

H. Barber Boone

H. Barber Boone is an attorney at Butler Snow LLP. Barber focuses his practice on commercial litigation issues including breach of contract, intellectual property, antitrust, and employment issues, as well as a variety of other types of commercial and environmental litigation. To learn more, please visit www.ButlerSnow.com.

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Filed Under: Featured StoriesPractice Management

About the Author: H. Barber Boone is an attorney at Butler Snow LLP. Barber focuses his practice on commercial litigation issues including breach of contract, intellectual property, antitrust, and employment issues, as well as a variety of other types of commercial and environmental litigation. To learn more, please visit www.ButlerSnow.com.

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