In a new case, an employer argued that even when there’s no evidence that a former employee misappropriated trade secrets, you should be able to block the person from working for a competitor merely by demonstrating that the employee’s new job duties would inevitably cause them to rely on your trade secrets. We’ll tell you what a California appellate court said about using this argument, known as the “inevitable disclosure doctrine.”
Trying To Silence Former Employee
When lock manufacturer Schlage Lock hired Douglas Whyte as vice president of sales, he signed a confidentiality agreement and an agreement not to disclose Schlage’s confidential information for personal or noncompany uses. Whyte did not sign a noncompete agreement. Whyte later jumped ship to work for Kwikset Corp., a direct competitor of Schlage.
Schlage went to court to bar Whyte from taking the Kwikset job. There was no evidence that Whyte was using or disclosing Schlage’s trade secrets. But the company argued that Whyte nevertheless shouldn’t be allowed to work for Kwikset because he would inevitably disclose Schlage trade secrets at his new job—such as information on pricing concessions and product finishing processes.
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Conflicts With California Policy
The court of appeal refused to block Whyte from working for Kwikset. The court said the inevitable disclosure doctrine is contrary to California law because it creates an after-the-fact noncompete agreement restricting employee mobility. Enforcing the inevitable disclosure doctrine would result in not only an injunction against a former employee’s use of trade secrets but also an injunction restricting the person’s future employment.
5-Point Protection Plan
Because of this decision, it’s more important than ever to take steps to protect your trade secrets. Here are some suggestions:
- Use confidentiality agreements. Have new employees sign an agreement not to disclose your confidential information. The agreement should define what a trade secret is and state that the employee may not disclose trade secrets or confidential information while employed or after they leave.
- Prohibit solicitation of customers. The court in this case suggested that you can protect your trade secrets by having workers sign a nonsolicitation agreement that’s narrowly drafted to protect trade secrets.
- Establish a property return policy. Have new hires agree in writing to return all company property when the employment relationship ends.
- Restrict access. Mark all sensitive information with labels indicating that it is confidential, contains trade secrets and is intended for internal use only. Keep materials containing trade secrets separate from non-confidential information. Lock file cabinets containing trade secrets and permit access only on a need-to-know basis. Also, maintain password protection for sensitive electronic documents.
- Conduct exit interviews. Ask departing employees to verify in writing that they have returned all company property, including any previously removed from the office, and that they haven’t disclosed your trade secrets to anyone. If they signed a confidentiality agreement, remind them of their obligations under it.