Employee turnover is a part of life for every business, large and small. But when employees leave they often take with them important knowledge about their employer’s business. This essential company know-how, referred to by courts as “trade secrets,” is critical to the success of any business.

There are important considerations for employers and employees alike when it comes to protecting trade secrets. If an employer fails to properly protect its trade secrets, years of knowledge about the employer’s customers, pricing, profit margins, suppliers, processes, products and development initiatives can walk straight into the arms of a competitor when a key employee leaves. Similarly, if an employee fails to understand his or her obligations to a former employer a costly lawsuit may be on the horizon.  Here are five practical safeguards to help employers and employees navigate this critical issue.

  1. Clearly identify trade secrets. Employers and employees both need clarity on what constitutes a trade secret. New York courts have consistently held that a trade secret is something that is actually secret, and gives a business a competitive edge in the marketplace. Employers should create a list of the trade secrets they want to protect and then have key employees with access to those trade secrets sign a properly tailored confidentiality and non-disclosure agreement. When the trade secrets include sensitive customer information a non-solicitation or non-competition agreement may also be necessary. This will give protection to the employer and clarity to the employee on what is protected when he or she leaves employment by the employer for any reason.
  2. Secure and protect trade secrets. Identifying a trade secret in a non-disclosure agreement is not enough! An employer also should implement appropriate security measures to protect its trade secrets. At a minimum, files that contain trade secrets should be backed up and access should be password protected and limited to those employees who have a need to know. Employees should know that their access to company trade secrets is monitored. A periodic review and audit of the security protections for trade secrets will go a long way to ensuring that they are protected and that employees are accessing and using them properly.
  3. Manage employee departures. The moment an employee announces his or her departure the employer should limit and monitor any further access to the company’s trade secrets. The employee should be reminded of his or her obligations under any non-disclosure, non-solicitation, or non-competition agreement, and should be informed that an image immediately will be made of the employee’s company hard drive to protect files and information from erasure, printing or electronic download. This upfront review of the employee’s obligations and restricted access to the company’s trade secrets will make the employee’s departure easier in the long run for both sides.
  4. Thoroughly interview new hires. Protecting trade secrets is a two-way street. Employers need to make sure that they do not hire people who are bringing a competitor’s trade secrets into the workplace. Failure to do so could result in a costly lawsuit. Interviewers should be instructed to thoroughly inquire about an applicant’s former employment and whether the applicant has signed an employment agreement with a non-disclosure, non-solicitation, or non-competition provision. New hires should be told not to bring anything with them from their prior job and to sign a certification that they have not done so.
  5. Review and train. No matter how strong a trade secret protection plan is, it will fail if it is not regularly reviewed by both the employer and its employees. Employers should regularly review their trade secret policies to ensure that they are robust and cover newly developed know-how and provide periodic training that explains the importance of trade secrets to the employer’s continued success and the harm to the company and its workers that unauthorized disclosure will cause.  Similarly, employees should regularly review their employment agreements to ensure that they are in compliance with their obligations to their employer.

While trade secret litigation has become a more frequent occurrence, much of the need to run to court can be alleviated if employers and employees follow basic practices to ensure that trade secret policies are clear, concise, understood and followed.

Terence Robinson is a Partner at Boylan Code LLP, a full service law firm with more than fifty legal professionals focused on serving you, the client. Offices are conveniently located in Canandaigua, Newark, and Rochester. This article is not legal advice.

Email: trobinson@boylancode.com.
LinkedIn: www.linkedin.com/in/terence-robinson-25382921/

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