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Losing More Than Just an Employee: Protecting Confidential Information

by Rachel Blue

Lately, we’ve seen a lot of employees walking out of buildings and plants with boxes of framed photos from their desks or lockers, and maybe a severance check in an envelope. The job cuts this time are deeper, and the next job may be further away than in the past. As a result, anger and desperation may prompt workers to pack up more than personal items in those boxes.

Taking care of business on the front end
If they didn’t do it when you hired them, ask employees that are staying with your company to sign confidentiality agreements as a condition of continued employment. Confidentiality agreements don’t have to be complex. It’s easy to include a few paragraphs in your general employment agreement, but an effective confidentiality agreement should address the following basic points.

The employer’s proprietary information must remain confidential, both during and after employment. The trick here is identifying what you consider proprietary. Answer these two questions to decide whether something is confidential:

  1. Do I want my competitor to have the information?
  2. Can a competitor get the information legitimately from an independent source?

If the answer to both questions is “no,” then it’s proprietary information.

Employers will want an assignment of all copyrights, trademarks, or inventions the employee comes up with during his employment with the company. We’re talking about inventions or materials created on company time with company resources that are relevant to your business or related to the employee’s job description. Keep in mind that most of the materials an employee creates in the course of his employment will be yours under the “work-for-hire” doctrine anyway, but asking for a formal assignment in advance makes things easier during a departure.

Don’t overdo it here by asking for an assignment of things clearly outside the scope of the employee’s duties. An information systems analyst who writes and illustrates a children’s book on weekends doesn’t have to give you rights to the book.

You’ll also want the employee’s agreement not to disclose the proprietary information of any third party that your company receives during his tenure. You don’t want to be liable for an employee’s disclosure or misuse of proprietary information left in your care. To that end, employers must protect information they obtain in bids with product specifications or proposals from third parties for product development (e.g., information from an inventor who seeks your company’s help in manufacturing a prototype for a new device).

Finally, employers will want an agreement that the employee won’t disclose any proprietary information he gained from a previous employer. The last thing you need is a lawsuit from the employee’s former boss for trade-secret theft. If the employee has information like that, tell him outright that you don’t want it in your workplace or on your computer system.

Obviously, if you were smart enough to put confidentiality agreements in place when you hired your workforce, you’ll want to review those provisions during exit interviews to remind departing employees of their obligations to the company.

Audio Conference: HR Confidential: New Ways to Protect Trade Secrets

Oops, I didn’t think of that — now what?
OK, so you forgot to have Joe in marketing sign a confidentiality agreement when he started working for your company, you never got around to asking for one while he was there, and now he’s been laid off. Have you kissed your website content and customer lists goodbye? Maybe not.

Keep track of your intellectual property. You keep track of how many laptops, company vehicles, and copiers you have. Proprietary information is no less important. Here are some tips on tracking and protecting it.

Register your training materials with the U.S. copyright office. Get into the habit of filing copyright registrations on content. Training manuals, website content, photographs, catalogues, and advertising copy are all eligible for copyright protection. When an employee, in the course of his job, prepares content like custom software or copy for a radio ad, his employer has a copyright in those materials under the work-for-hire doctrine.

Registering something with the copyright office isn’t expensive, and you’ll need the registration if there’s an infringement. Copyright registration is a prerequisite to filing a copyright-infringement lawsuit. If Joe takes any registered ad copy when he leaves to work for his new employer — who happens to be your number-one competitor — you can sue for copyright infringement, which carries penalties up to $150,000 per instance of copying.

The copyright office requires that a deposit of materials (i.e., a copy) be submitted with the request for registration. But what if the material you want to protect isn’t just ad copy, but content that’s so sensitive you don’t want to deposit a copy? You can still register it under the copyright office’s procedures for sensitive information, which allow you to redact a certain amount of proprietary information in deposit materials.

Protect your trade secrets
Imagine you get a call for a reference from Joe’s would-be new boss. He mentions that he’s really impressed with the writing sample Joe provided — his proposal for electronic invoice processing is ingenious! Unfortunately, you never got the process protected because you didn’t think it was patentable, and the copyright office’s public deposit requirement made you nervous. There’s still hope.

In addition to the copyright issue, the Uniform Trade Secrets Act (UTSA), which has been adopted in most states, including Oklahoma, Arkansas, Missouri, and Kansas, might allow you to seek damages based on the theft of a trade secret. There are a couple of important points to remember in connection with trade secrets, however.

First, the information must give the employer some competitive advantage; in other words, it can’t be common knowledge. Second, as the party seeking relief, the employer must be able to prove the information was treated as a secret while it was in its possession. The downside of the UTSA is that you really can’t use it until after the information’s been taken. And the penalties, although they can be stiff, may never make up for the loss of your proprietary information.

State-by-state comparison of 50 employment laws in all 50 states

Perform regular information audits
“Count off” your intellectual property with an annual routine audit by department of any materials that have been created by employees. A regular production incentive — a free lunch, a night out on the company — may go a long way toward encouraging full disclosure of updated or newly created materials, which can then be indexed, recorded in a central location, and if necessary, deposited for registration at the copyright office.

During an audit, look for newly created materials, and determine whether they can be protected by registrations like copyrights, trademarks, or patents. If they can’t, decide whether they could be considered trade secrets. If an employer determines that the materials are really trade secrets, it must be sure it’s treating them as though they’re secret, with password protection, “need-to-know” disclosure, “eyes-only” markings, encryption, or physical security.

Bottom line
You guessed it — an ounce of prevention is better than a pound of cure. Having employees sign confidentiality agreements, protecting your intellectual property as it’s developed, and doing routine audits so you know what you’ve got will keep you ahead of the game. If you fail to do any of that, the good news is, there are still things you can do after the fact to protect your precious information.