3 Steps To Minimize The Risk of Trade Secret Litigation With Departing Employees

By Bob Garrey

It happens often: a key employee notifies her supervisor that she has accepted a job with a competitor and will be leaving the company.  The initial reaction is panic—“she can’t leave, she knows everything about our business, she knows all of our trade secrets, and she knows our confidential business strategies.”  A call is made to outside counsel and everyone gears up for litigation against the former employee and her new employer.  But, is that the only course of action? 

  1. Make every reasonable effort to retain the employee.  
    If you are dealing with a key employee whose departure will be costly to the organization, you should assess whether it is possible and desirable to retain the employee.  Do not automatically assume the employee is out the door and cannot be convinced or enticed to stay.  Whether it is an issue of compensation, additional vacation time, freedom to work on projects of her choosing, or some other non-monetary perk or benefit, employers should fully explore all available options at their disposal to retain the employee.  

  2. Negotiate assurances with the departing employee.
    If retaining the key employee is not an option, meet with the person, ideally prior to the exit interview, to address the departing employee’s post-employment obligations with respect to the employer’s trade secrets and confidential information:  

    •    Explain the importance of preserving the secrecy of the trade secrets and confidential information they had access to or developed during their employment.  

    •    Discuss all confidentiality, nondisclosure and covenants not to compete that the person may have executed.  

    •    Ask them if they have any questions or concerns about any areas of their work and any matters which may not be clear to them.  

    •    Find out where the departing employee is going, what they will be doing, and when they plan to begin work for the new employer.

    •    Ask the employee two important questions:  1) are you certain that you can perform your new job without using or disclosing our trade secrets and confidential information? 2) will you notify us if you are ever asked to use or disclose any of our trade secrets or confidential information?  

    •    Have at least two persons present for the meeting and document the meeting with a checklist that the employee initials to indicate that you covered the topics in your meeting.

  3. Contact the new employer.
    Consider contacting the new employer after your meeting and before the employee’s start date.  The purpose of this contact is to inform the new employer that the departing employee executed one or more written agreements in which they agreed not to use or disclose confidential information and trade secrets belonging to the company.  Describe the former employee’s work in general terms, but provide enough specificity to place the new employer on notice of the areas that you are most concerned about.  Detail the efforts you have undertaken to obtain assurance from the departing employee that she will honor her obligations of confidentiality and that she has provided assurance that her new job will not require her to use or disclose your trade secrets.  Request confirmation from the new employer that they will not ask nor allow her to use or disclose any of your trade secrets in her work for them.

Taking these steps will not eliminate the need for litigation in every departing employee situation.  Sometimes, litigation may prove to be the only means of protecting against imminent use and disclosure of your trade secrets.  But, when followed these steps may reduce the number of lawsuits filed merely out of an abundance of caution, because an employee “inadvertently” disclosed trade secrets, or because a new employer was not aware of the former employee’s previous work.  And if followed, these steps will strengthen the foundation of any trade secret litigation that you may be forced to initiate.  

Next week’s blog post will discuss the steps to follow preparing for such a lawsuit.