Protecting Confidential Information–Keep Your Assets from Walking Out the Door

By: Melanie Dunajeski

Many employers use a combination of Non-Competition and Confidentiality Agreements to attempt to limit post-employment unfair competition by former employees. Non-Competes have always been disfavored and subject to strict court construction against employers as a restraint of trade, but are recently getting more negative public policy attention. As state legislatures and courts chip away at protections employers have previously obtained through Non-Compete agreements with employees, employers must look more carefully at Confidentiality Agreements and realistic strategies to protect their trade secrets and other confidential information.

It is a conundrum—a business needs to keep certain information confidential to maintain a competitive advantage, but also needs to either disclose that information to employees or have the employees themselves develop that information as part of their jobs. What is “confidential information” anyway—or more precisely “protectable confidential information”?  Confidentiality agreements containing exceptionally broad definitions of “confidential information”- such as “anything the employee may have seen, heard or had access to during employment” are likely unenforceable—mainly because a confidentiality agreement will only protect information that is actually confidential and that the company has taken reasonable efforts to keep as confidential.  The mere existence of a confidentiality agreement does not magically turn company information into secret information—or as one court has stated “such an agreement cannot make secret that which is not secret.”   So, for example, while the identity of a security company’s clients is likely not confidential where uniformed security guards wearing badges with the security company’s name on them are supplied to the clients,  the pricing of the security company’s services to the clients or the terms of their contracts likely is where the security company took reasonable steps to maintain the confidentiality of the information.  Confidentiality Agreements that narrowly tailor the scope of the restriction to information that is reasonably necessary for the legitimate protection of the employer’s business or competitive advantage are more likely to be upheld as enforceable even where that information is not a true “trade secret.”  

In addition to having a carefully tailored Confidentiality Agreement, employers need to take affirmative measures to keep the information that they claim as protected information confidential.  In these days of digital information transfer and storage, this may present unique challenges, but if the information has value, it is worth protecting.  Confidential information should not be accessible to everyone in your organization from the stock clerk to the CFO—and access should be protected through segregation, limitation of access, passwording or even encryption techniques.  It also makes sense to track access to or transfer of your sensitive information—such as a transfer of protected information to an external account or stand-alone memory device.  Unusual access to or mass transfer of confidential information is a red flag that your information may be walking out the door.

The mobility of devices used by employees is also a concern–are your sensitive files being downloaded to handheld devices or tablets, or are they being accessed on devices supplied by the employee that may not have the security measures that are built into company owned and controlled devices?  Worse yet, are your employees accessing your confidential information on devices that may be shared with people that have not entered into a confidentiality agreement with you, such as employee family members or cohabitants?

The bottom line is that information is the lifeblood of most businesses now, and you need to take affirmative steps to be sure that your confidential information is and stays protected,  that access is both limited and under protected circumstances, and that anyone you have chosen to share this information with has entered into an appropriate agreement with you.

Do you need help crafting appropriate Confidentiality Agreements for your workforce? Contact the employment attorneys at Drewry Simmons Vornehm LLP.