In this Newsletter: Safeguarding Your Company's "Crown Jewels" and Avoiding Costly Liability: Steps You Can Take This Month
Your new hire and pre-employment policies and practices can increase your ability to protect your Company's "crown jewels," (a.k.a) your proprietary information and decrease your risk of liability.
In this Newsletter, you will find the following tips and tools for protecting your Company's proprietary information:
How to Protect Your Proprietary Information and Reduce Potential Liability Through a Confidentiality Agreement
In our next issue, we will shift our focus to Cornerstone Two of the Sustainable Workplace: Sustainable Performance Management Practices that reduce your Company's risk of liability and increase its profitability. If you would like to see prior Newsletters, click here.
There are some simple steps you can take before or when you hire employees that will increase your ability to protect your Company's trade secrets and other property while reducing your risk of liability.
1. Require that New Hires and Consultants Execute a Confidentiality and Inventions Agreement. Advise applicants in your new hire documents (particularly in your offer letter) that execution of and compliance with the Confidentiality Agreement is a term and condition of employment. Recommended elements for a Confidentiality Agreement are outlined below.
2. Reiterate Confidentiality Obligations in The Employee Handbook. Reiterating the confidentiality obligations is another opportunity to set forth expectations, and at the same time creates one more contractual obligation for the employee. Remember, employees should acknowledge in writing their receipt of and opportunity to read the Handbook, along with their obligation to comply with its terms.
3. Consider (Carefully) Using Surveillance Tools. There are situations in which observation of the physical worksite will be important to protect property (or employees). Make sure you notify employees and visitors to the worksite that they may be videotaped. Similarly, there may be circumstances in which you want the ability to listen to or record an employee's business conversations. Remember, in California you need to notify all participants on a call before you may do so.
4. Implement Reasonable Physical Security Measures. Provide employees with passwords to your computer systems (while reserving the right to override), and limit computer access to confidential information to those with a bona fide "need to know". Use security passes and other safety systems to limit access to your workplace only to those authorized to be on premises. Use locked cabinets for your confidential and trade secret information, and limit access.
5. Educate Your Workplace on What Is Confidential. In addition to creating expectations through your handbook, train employees on the appropriate treatment of confidential information. Mark confidential information as confidential (but don't overdo to the point that you render that confidentiality stamp meaningless).
6. Create a Document Treatment Policy. Establish written procedures for the treatment of confidential documents: what are they, how are they maintained, for how long, and how will they be destroyed. Be sure you include how documents must be treated in the event of notice of litigation. And then be sure you enforce the policy and audit the practices!
7. Describe Appropriate and Inappropriate Use of Company Systems. Remind employees that all communication systems belong to the Company, and that the employees have no reasonable expectation of privacy when they use Company computer and phone systems, even when that use is for a personal purpose. Be clear about what employees may and may not do on your systems, and whether they may do so during working hours or while on breaks. And consider an occasional audit to determine whether your confidential information is shared.
8. Establish procedures now for future terminations. Once you make a decision to terminate an employee, have a procedure for terminating the employee's access to your systems and workplace immediately after termination is communicated. Also, departing employees should be reminded of the confidentiality obligations, and should execute termination documents reiterating these obligations. In the event employees with significant access to your confidential information move to a competitor, consider a letter wishing them luck and gently reminding them (and maybe their new employer) of their confidentiality obligations.
9. Evaluate the Effectiveness of Your Policies and Procedures. Establishing the right policies and practices is a great first step. The next step is to schedule an annual audit to determine how well the policy is followed and working.
These are important steps. We know you already have a lot on your plate. Let us know if we can help.
California law protects mightily an employee's right to
engage in a lawful profession, trade, or business. Contracts that restrain that right are "to that extent" void. In other words, you may not, except in extremely limited situations associated with the sale of a business or dissolution of a partnership, keep an employee from working for your competitor. You may however, and should, restrain the employee's ability to use your confidential information to do so. At the same time, you may protect yourself from claims that your Company wrongfully is using someone else's information.
1. Define Your Particular Confidential and Trade Secret Information. Obviously, you will not disclose trade secrets in the confidentiality agreement itself. At the same time, we recommend that you put some real thought up front into what information truly constitutes your Confidential Information. Can your customer list be created from a phone book? If so, it is not confidential information, and including "customer list" in your definition will undermine the actual confidential information listed in the definition. A tailored list is much easier to enforce and defend than a cookie cutter version that includes categories of information irrelevant to your workplace.
2. Prohibit dissemination of confidential or trade secret information both during and after the employment relationship. Some companies mistakenly place time limits on the prohibition of using confidential information post-employment. If the information truly is confidential, and not otherwise discoverable except through employment, then you may and should protect its confidentiality for the length of time it remains confidential.
3. Prohibit Competition During Employment. Again, except in very limited circumstances, California law prohibits post-employment non-compete agreements. You may, and should, prohibit an employee from working for a competitor during the employment relationship.
4. Prohibit the Solicitation of Employees After Termination. Generally, a one year term is a reasonable period.
5. Exercise Caution in Other Restraints of Trade. Some companies like to include a restriction on an employee's ability to solicit customers for a period of time following termination. We don't: if the customer list constitutes a trade secret, then it is protected by your provisions against using confidential and trade secret information. If the customer list is not a trade secret, then this restriction is understood to be an unenforceable non-compete. Including such an unenforceable clause may threaten otherwise enforceable clauses of your Confidentiality Agreement. Remember, requiring that an employee or applicant execute a Confidentiality Agreement that includes non-compete clauses will expose you to liability.
6. Confirm That the Employee Has No Conflicting Contractual Obligation. This will protect your workplace from a claim that you are contractually prohibited from hiring a particular individual (for example, if the employee had an enforceable non-compete with his former employer and your competitor).
7. Confirm that the Employee is Prohibited From Using Confidential or Trade Secret Information From a Prior Employer. Remember the letter we suggested you may want to write to a former employee and his new employer reminding them of the employee's obligations to your Company? If you get a letter like that, you want to be able to show the new employer that you have prohibited their former employee from using their confidential information. If the employee uses prior employer information without the Company's permission, you are in a better position to protect your Company from a claim that you assisted him.
8. Define Your Company's Policy on Inventions. Be clear that inventions which (a) are invented on Company time or with Company equipment, supplies, facilities or trade secret information; or (b) relate to your business or demonstrably anticipated research or development; or (c) result from any work performed by the employee for the Company, belong to the Company and must be assigned to the Company. Where the ownership right is assigned to the Company, so should be the right to sue for past infringement. Require that any existing inventions, along with third parties who may have consulted on inventions, be disclosed.
9. Reserve the Right to Share This Agreement with Future Employers.
10. Make Sure You Include an Integration Clause, so that this Confidentiality Agreement will replace any prior written or verbal statements that contradict this Agreement.
11 . Require the Return of Confidential Information at Termination. Let employees know at the beginning of the relationship that if the employment relationship ends, the employee is required to return all Company property to the Company, including copies. We find this is a very helpful clause when employees retain e-mails and other documents after termination. Let employees know when you hire them that they will be required to certify their ongoing confidentiality obligations and their return of property on termination.
12. Reaffirm your at-will policy. Remind your employee that even though the agreement talks about potential future behaviors, nothing in the Confidentiality Agreement may be construed to contradict the Company's at-will employment relationship.
If you would like some help either reviewing your existing agreement or creating a new one, please let us know.
Read through this short story, and take our quick quiz.
Ethel begins working for “Everybody Loves Widgets,” the leading designer of widget components in California, as the Manager of Research and Development. When she joins the Company, Ethel signs an employment agreement by which she agrees that she will not use or disclose the Company’s confidential information during her employment and for one year after termination of employment. She also agrees to a post-employment two year non-compete. There are no other provisions regarding inventions, confidentiality or Company property.
One weekend, using her company-issued laptop at home, Ethel develops a unique widget harness. The harness is the only one of its type in the market and is an instant moneymaker for Everybody. Not long after, Ethel leaves Everybody Loves Widgets and goes to work for The Other Widget Guys, a competitor of Everybody Loves Widgets. She signs nothing.
366 days after Ethel leaves Everybody Loves Widgets, The Other Widget Guys begins manufacturing the unique harness Ethel developed while at Everybody Loves Widgets. At the same time, Everybody Loves Widgets learns that the day before she left, Ethel downloaded numerous specification documents related to the unique widget harness, emailed herself sensitive company documents, and deleted several research files.
Quick Quiz: Ethel and the Widgets
1. Does Everybody have any obvious claims against Ethel?
2. Does Everybody have any obvious claims against The Other Widget Guys?
3. What is the lesson learned here?
To see our thoughts and recommendations, click here.
At Schor Vogelzang LLP we help our clients in a number of ways, including in-house training, review of policies and practices, and creation of systems to create a Sustainable Workplace. Specific to protecting your Company's "crown jewels" and reducing your risk of liability, we offer the following resources:
1. Confidentiality and Security Practices Review. If you want to be certain you are protecting your key information and reducing your risk of liability, we are happy to review your current protection procedures and to make suggested changes as needed.
2. Documents and Procedures to Protect Your Workplace. If you realize your policies, agreements and practices are not protecting your "crown jewels," we can provide you the documents to protect your proprietary information and reduce your liability.
3. An Interactive Webinar for You: Protecting Your Workplace and Increasing Profitability Through Onboarding. In this one hour webinar beginning at 8:00 a.m. on September 28, 2011 we will highlight our top recommendations for new hire practices. Please let us know if you would like to participate.
Keep an eye out for next month's newsletter for insights on Sustainable Management Practices.
2170 Fourth Avenue, San Diego, CA 92101
P: 619.906.2400 F: 619.906.2401
This website may constitute attorney advertising. Please review our disclaimers.