– Trade Secret Protection Through the Use of Employment Agreements –
No matter what business you are in, your company has probably worked hard to develop products, services, systems, clientele, processes, documents, and/or other information that has an intrinsic and possibly proprietary value to your business. If these details were made known to your competitors or others, they could seriously impact your ability to succeed. At the same time, you often need to share some of this information with certain employees in order for them to perform their jobs well, and for your company to prosper.
So the question arises: How do you protect your company’s trade secrets from being disclosed to those who might use it to harm your business? One effective way is through the use of employment agreements. The Southern California business law attorneys at Kaplan Law Firm can assist you in drafting and executing employment agreements that will help protect your valuable trade secrets.
In California, employers and businesses may enter into separate contracts with their employees to protect information that falls under the general heading of “trade secrets.” In general, a trade secret is any item of information used in your business that is not generally known to the public, and from which your business derives some economic benefit or value due to its confidential nature. The trade secret must consist of information that your business has made an effort to keep from the general public, such as by restricting access to it, or by other means—including the use of employment and confidentiality agreements.
A trade secret is not limited to only certain types of information, such as a recipe, a customer or client list, a company standard operating procedure, or a manufacturing process, but can also include many other types of information, like:
- Marketing strategies;
- Business plans;
- Pricing information;
- Contract details;
- Financial information (to the extent any information is not required to be disclosed by law);
- Personnel information;
- Research data, such as marketing data, compiled by the company;
- Internal manuals, notes, memos;
- Computer programs;
- Formulas, ingredients, or recipes;
- Plans, patterns, drawings, and designs; and
- Other information.
What Types of Employment Confidentiality Agreements are Allowable?
In California, it is very important that employee confidentiality agreements be drafted carefully, and by experienced business lawyers, because agreements that are overly broad or unreasonable will not be enforced by California courts. At the same time, agreements that are drawn too narrowly may provide little or no protection.
For example, California law does not favor employment agreements that seek to protect trade secrets by preventing an employee from leaving to go and work for a competitor (often called “non-compete” agreements). California’s Business and Professions Code section 16600 provides that, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” While there are some limited exceptions to this rule (such as when one of the parties to a non-compete contract is a partner or owner of the business), a trade secret confidentiality agreement that would effectively prevent an employee from working for a competitor must be extremely limited in scope and duration, so that it does not run afoul of this law.
A more effective way to protect trade secrets is through a non-disclosure agreement, commonly known as an ‘NDA.’ Again, NDAs cannot be overly broad, but California courts will enforce them. A valid non-disclosure agreement must specify the type of information that the company regards as confidential, so that both employer and employee—as well as the courts that may interpret them—are able to identify clearly what information is subject to the agreement, and how the employee may or may not use such information. A reasonable person reading the agreement should be able to determine what can properly be understood to fall within its proscriptions, and the information specified in the agreement must qualify as legitimate trade secrets.
Non-disclosure agreements can be written to extend beyond the employment relationship. For example, if an employee has access to a confidential customer list that includes information about the customer, the employer may fairly require that the employee not only not disclose it while he or she is employed, but for a reasonable period of time after they have left their former job, and the employer-employee relationship has ended, depending upon the nature of the information.
Another way that businesses may protect certain types of trade secrets are by assignment or invention agreements, particularly for employees who develop technological processes or products. In general, an assignment agreement specifies that products, ideas, or other inventions developed during the employment relationship (and related to the employment) belong to, or are legally assigned to, the employer, and not to the individual who may have developed them in the course of performing his or her job.
Like non-disclosure agreements, these assignment or invention agreements may be written to extend beyond the employment relationship. That is, an employer may prevent a former employee from utilizing certain types of information garnered during his or her employment to develop a derivative idea or invention for profit. However, again, these types of “trailer” clauses cannot be overly broad in scope and duration, and an employer is generally required to show that a former employee is somehow deriving financial gain from a trade secret that rightfully belongs to the company.
Why You Should Have a Qualified Commercial & Business Law Litigation Attorney Draft Your Employment Agreements
As noted above, employment agreements that place limitations on employees must be carefully drafted to steer clear of several problems that can invalidate such agreements. While California courts will generally uphold agreements that are “reasonable,” the interpretation of what is “reasonable” will vary from one situation to another, from industry to industry, from court to court—and the facts and details of each particular case. Attorneys who practice law in this area keep abreast of new cases, regulations, and statutes that may affect the validity of employment agreements, and can help employers to carefully draft these agreements in such a way that they are more likely to be upheld in court.
In addition, if there is a legal dispute—whether a formal lawsuit or not—regarding these agreements and any misappropriation of trade secrets, a litigation attorney will be the one attempting to poke holes in any agreement. While many general business or corporate attorneys are fine drafters of legal documents, it takes a litigation attorney to truly appreciate and understand the myriad ways these agreements can be attacked or scrutinized. Being able to anticipate problems that might arise, and drafting around them, can save the client a great deal of time, money, and potentially, can help save the trade secrets themselves.
If you would like to develop employment or other agreements that will help protect the trade secrets on which your business depends, contact the San Diego business law attorneys at Kaplan Law Firm at (619) 232-1991, or info@kaplanludmer.com. We can help you identify those aspects of your business that need protection, so that your business can perform better in a competitive marketplace.
