Privacy, Business and Law

Many people involved in high-tech start-up companies are fairly sophisticated about copyright and patent protection, and seek legal advice on those issues early in the development of a product or idea. However, there is a large category of critical information that is not patentable or subject to copyright protection that can and should be protected from misappropriation and misuse by current and ex-employees.

Information regarding such things as business plans, customer identities and preferences, investors, sales strategies, pricing, and executive compensation can be trade secrets, which, when properly handled, are protected from disclosure or use outside the company.

It is a must for new companies to have written policies that warn employees not to disclose or use trade secrets, and to have employees and consultants sign agreements making these policies binding. Failure to take these steps, even at an early stage of development, can be disastrous. First, publicizing rules regarding confidentiality creates a deterrent to anyone who might otherwise inadvertently or intentionally disclose confidential information, and provides a basis for a breach of contract claim if confidential information is disclosed. Second, the law requires proof that steps were taken to keep information secret before the information is given trade secret protection. As a result, if an ex-employee threatens to use confidential information, it may be impossible to obtain an injunction against the disclosures if there is no proof that the employer had designated the information as confidential, and notified employees to keep it that way.

In addition, if you are in a state such as New York that will enforce non-compete agreements (at least under the same circumstances), it is important to identify those people within the organization who have the knowledge and ability to cripple the company through competition, and have them agree in writing that they will not engage in competition for a period of time after leaving the company. Another alternative is to have employees sign agreements that prohibit them from soliciting customers after they leave the company. These “non-solicitation agreements” often are as effective as non-competition agreements and, assuming that the list of customers is a trade secret, are easier to enforce. Finally, employee confidentiality agreements should contain “anti-employee raiding” provisions that prohibit ex-employees from soliciting company employees on behalf of other companies.

by Dan Weisberg “10 Mistakes Technology Companies Make With Employees”