Stake the Borders Early in Protecting Sensitive Data
By Edward Gray
In an increasingly competitive marketplace that features a more mobile work force, employers must have specific legal strategies in place to prevent trade secrets and other sensitive information from walking out the door when an employee leaves.
This is especially true when an employee leaves to join a competitor.
Employers traditionally have left it to the courts to mediate contentious splits, but such action leaves a company in a reactive position and without attractive options.
The best option for employers is to establish a legal framework for both the employee's departure and for how any sensitive information they may have will be treated.
Having well-drafted contract obligations in place with employees in advance of a problem is the key to obtaining the best possible result in court.
However, in the event of a dispute, employers should go a step further and negotiate a binding consent order with the departing employee and the new employer to leave absolutely nothing to chance, or to the arbitrary interpretation of a judge and jury.
As soon as an employer learns an employee is leaving, it must assess his or her access to sensitive information and to what extent the employee poses a security risk. Particular attention must be paid to whether information has been copied and removed in preparation for the move. Obviously, considerable care should be taken to gain as much information as possible regarding the nature of the new assignment, what the job duties will be and how closely they relate to the employee's current job.
The courts also assign specific rights and duties to departing employees and new employers. It is assumed that the employee will not act in a manner that intentionally brings harm to the former employer.
The new employer must also take care, while free to compete vigorously against the former employer, to review the new employee's obligations to the former employer to avoid liability for improperly acquired trade secrets or confidential information. This is particularly important when the employers are direct competitors or when the employee is hired to invent or is at a senior level with either employer.
There are significant penalties that can be imposed if a sending employer can demonstrate the theft of trade secrets or the infringement of patents and copyrights.
When drafting a consent order to govern the employee's transition, all rights and duties must be taken into account. The agreement should, at its core, provide reasonable assurance that the information possessed by the employee will never be disclosed or will no longer be current when it benefits the receiving employer.
Since it is understood that the employee, in most cases, will be permitted to move, the consent order should focus on specific commitments that restrict the employee from communicating directly with parts of the receiving organization that would derive the greatest benefit from the trade secrets or confidential information of the sending employer.
In most cases, it will be sufficient if, for a limited time, the employee is given a different type of job requiring different skills and knowledge than was important during his work for the sending employer. The length of such a restriction generally is six months to two years, depending on the nature of the information, along with the agreements to which the employee is obligated and the effect of the restriction on the employability of the person.
To ensure compliance with the consent order, it should contain a reporting obligation that requires a certification every two or three months by an appropriate officer of the receiving company, such as the general counsel.
Having an effective, written agreement with a departing employee is the only way employers can protect successfully crucial information and trade secrets. Ideally, such agreements should be created at the time the employee is hired. They should not be more restrictive than permitted by the law where the agreement is signed. However, they should assure the employer that its intellectual property and confidential customer information will be protected.
Drafting one must be a priority of any company before hearing of a departure, and it must take into account all aspects of the law in this area, as well as specifics of the situation.
A goal of any dispute with a former employee and the new employer should be a consent order that carefully spells out the rights and duties of all parties.
Edward Gray is an intellectual property attorney with the firm of Fitch, Even, Tabin & Flannery in Washington.