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What HR pros must know about protecting trade secrets

12/30/2011

When any valued employee leaves, the company experiences a loss. The loss is greater, however, when the former employee departs to work for a competitor and begins using the company’s confidential information or trade secrets. In such a scenario, the company may have legal claims against the former employee—and maybe even the competitor—for trade secret misappropriation.

HR has a key role to play in protecting a company’s proprietary information. Here’s how to do it.

Get it in writing

Make sure every employee signs a valid and enforceable employment agreement.

Most companies with trade secret information require employees to sign an employment agreement as a condition of employment. These agreements often contain nonsolicitation and noncompete clauses. Those agreements must be enforceable and in line with state law.

Work with your legal team to ensure that all employees with access to trade secrets have executed an employment agreement that complies with your state’s trade secrets law. If you have employment agreements signed by current employees, consider performing an internal audit to determine whether the agreements are up-to-date with existing law.

Policies and handbooks

Include confidential information provisions in written policies and handbooks.

In addition to an employment agreement, each employee should receive written policies, an employee handbook or both, discussing the treatment of confidential information during and after employment with the company. One policy should make clear that during employment, the employee may have access to confidential information and shall not use or disclose that information except as expressly permitted.

Another written policy should make clear that the employee’s duty to maintain confidential information continues even after the employee leaves the company. These types of policies are intended to supplement, not replace, employment agreements. The policies should be as specific as possible in describing the type of information that the company considers confidential and who should have access to that information.

Actively protect trade secrets

In determining whether information is a trade secret, courts often look to the measures a company takes to keep those secrets confidential. Take appropriate precautions to safeguard important information. If your company compiles customer data or client information in a central location (binders, for example), keep that information locked up and provide it only to essential employees. If your company electronically maintains trade secret information, restrict access to the information with passwords.

Protect clients and customers

Take care to ensure the security of client and customer information. Understand that, while the law varies in each state, many courts are reluctant to provide trade secret protection to a company’s customer list and client contact information. Information that can be found in the phone book or on the Internet is not likely to constitute a trade secret.

But when a company spends significant amounts of money and resources to obtain clients—and those clients have long-standing, permanent relationships with the company—a court may be more inclined to find that certain customer and client information is a trade secret.

When the employee leaves

After termination, secure all trade secret information. When an employee resigns and goes to work for a competitor, the employee may attempt to download trade secret information from the company’s computers or take other types of confidential information on or before his or her last day.

As soon as an employee with access to confidential information provides notice of resignation, take immediate steps to secure all confidential information.

Restrict the employee’s continued access to confidential information. If possible, monitor computers to determine whether the employee is downloading any confidential information. After the employee leaves, have an IT specialist examine the employee’s computer and other company-provided electronic devices to determine whether any confidential information was downloaded or otherwise compromised.

Seek legal advice

Get your attorney involved quickly if an employee goes to work for a competitor. Time is of the essence in preventing the employee from disclosing confidential or trade secret information. Once sensitive information is leaked, it is hard to undo the damage.

For example, if the former employee uses company information to successfully solicit customers or clients to a competitor, it will be difficult to convince those customers or clients to return. The best course of action is to prevent customers or clients from leaving, and many times that requires the threat of prompt legal action. The faster the company’s legal team knows of a potential problem, the better.

Keep your business

If an employee resigns to work for a competitor, you must assume that the employee will solicit the company’s existing clients. This solicitation often occurs immediately after resignation.

Remind the resigning employee—in writing—of his obligations under the employment agreement and any other company policies. Also, another company representative should promptly contact all the employee’s clients to ensure a seamless transition to a new representative. Act fast to keep an existing client base.