Seyfarth Synopsis: On September 25 (yes, a Sunday), Governor Brown signed into law Senate Bill 1241. SB 1241, effective January 1, 2017, adds Section 925 to the Labor Code to restrain the ability of employers to require employees to litigate or arbitrate employment disputes (1) outside of California or (2) under the laws of
Seyfarth Synopsis: Protecting trade secrets from employee theft requires more than using an NDA when onboarding employees. If businesses want to protect confidential information, they need a cradle-to-grave approach, reiterating employee obligations regularly, including during exit interviews. (Yes, you need to do exit interviews!)
As companies face increasing competitive and financial pressures, management is understandably consumed with running the day-to-day operations of the business and working to achieve business objectives and maximize the bottom line. As a result, it is not uncommon for companies to find themselves in situations where important assets are overlooked or taken for granted. Yet, those same assets can be lost or compromised in a moment through what is often benign neglect.
Authoritative sources estimate that companies lose hundreds of millions of dollars (if not billions) as a result of trade secret theft. At the same time, companies sometimes find themselves, through poor controls, exposed when they inadvertently obtain others’ trade secrets.
In the rush to deliver results, some companies take shortcuts in the hiring and departure process that often leave them exposed to claims for trade secret misappropriation, aiding and abetting breaches of loyalty, and intentional interference with contractual relationships or business expectancies with customers or employees.
California’s strong public policy against certain employee noncompetition agreements and post-termination restrictions on employee mobility means strong trade secret protections are essential for California employers to protect against the unlawful use or disclosure of valuable company information and related competitive issues when key employees join competitors. Accordingly, while non-competes may be void in California, prudent companies conducting business in California will ensure that their trade secret protection practices are state of the art, including their onboarding and offboarding process.
In this second video of a two-part series (see part one here), we illustrate some best practices when interviewing a competitor’s employees, as well as handling your own employees’ departures, regarding the protection of trade secrets and other confidential information in California. During the video, a prospective candidate offers to share during his employment interview his current employer’s trade secrets regarding sensitive business and customer information for the Southern California market. You will also see how the employer handles the exit interview of that employee.
When watching the video below, consider the following:
- How does the interviewer avoid the applicant’s disclosure of trade secret and other confidential information and focus the candidate on general skills and knowledge?
- How does the prospective employer condition its offer of employment?
- How does the current employer try to protect its trade secret and other confidential information with departing employees?
- What type of policies and procedures do the current employer and prospective employer put in place to better protect themselves?
Click below to discover some of the best practices illustrated in the video and in general to protect trade secrets.
California is a unique jurisdiction because of its public policy against certain employee noncompetition agreements and post-termination restrictions on employee mobility. This general prohibition against noncompetes with employees leaves trade secret laws as the primary mechanism for employers with California based employees to protect against the unlawful use or disclosure of valuable company information and related competitive issues when key employees join competitors.
Yet many employers fall short in protecting trade secrets through the inadequate handling of employee departures. Moreover, many companies fail to understand the potential liability that may arise with the unlawful acquisition of a competitor’s trade secrets when interviewing and onboarding a competitor’s employees.
In this first video of a two-part series, we illustrate some bad practices when interviewing a competitor’s employees, as well as handling your own employees’ departures, regarding the protection of trade secrets and other confidential information. During the video, a prospective candidate offers to share during his employment interview his current employer’s trade secrets regarding sensitive business and customer information for the Southern California market.
When watching the video below, consider the following:
- What concerns do you have about anything the interviewer did?
- What concerns about what the prospective employee did?
- How about the current employer?
- What type of policies and procedures could both the current employer and prospective employer put in place to better protect themselves?
Click below to discover some of the bad practices illustrated in the video.…
Prudent employers are often looking for areas in their business where valuable company data may not be adequately protected.
Enter the growing prevalence of third party online data storage for professional and personal use in the workplace, coupled with the increasing accessibility provided by employers to access company data remotely.
While the benefits of cloud computing are well documented, the growth of third party online data storage has facilitated the ability for rogue employees to take valuable trade secrets and other proprietary company files, in the matter of minutes, if not seconds.
There are have been several high profile cases in California recently addressing the alleged theft of company data by employees through the use of third party online data storage.
To address this technology and threat to companies, employers must be vigilant to ensure that they have robust agreements and policies with their employees as well as other sound trade secret protections, including employee training and IT security, to protect their valuable trade secrets and company data before they are compromised and stolen. This is particularly important in California because California law can provide limited protection for employers—compared to other jurisdictions—because of its general prohibition of non-compete agreements and growing trade secret preemption or supersession doctrine.
As we have previously discussed, one of the notorious employment laws separating California from other states is its long-standing and draconian prohibition of employee non-compete agreements. Additionally, some recent California decisions have significantly limited an employer’s ability to pursue certain claims and remedies based upon the theft of mere confidential or proprietary information by rogue employees. Employers may have limited recourse under California law if the stolen data does not rise to the level of a trade secret at least under a tort theory of recovery.
Further, a recent article in The Recorder entitled “Trade Secrets Spat Center on Cloud,” observed that the existence of cloud computing services within the workplace makes it “harder for companies to distinguish true data breaches from false alarms.”
Given these challenges, employers should implement policies and agreements to restrict or clarify the use of cloud computing services for storing and sharing company data by employees. Some employers may prefer to simply block all access to such cloud computing services and document the same in their policies and agreements. Also employers should provide education and training regarding the company’s policy regarding employee use of cloud storage services.
Additionally, certain key steps should also be taken to protect against the theft of trade secrets and confidential information by departing employees with this new threat in mind:…
Not necessarily. Some recent California decisions have significantly limited an employer’s ability to pursue certain claims and remedies based upon the theft of mere confidential or proprietary information by rogue employees.
Defendants (often individual former employees) who are sued in California for stealing a company’s data are increasingly using the trade secret preemption doctrine to seek dismissal of non-trade secret claims, which are often pled alongside trade secret misappropriation claims, that allegedly fall within the scope of the California Uniform Trade Secrets Act (“CUTSA”).
Non-trade secret claims advanced by the employer typically include:
- interference with contract
- interference with prospective economic advantage
- breach of fiduciary duty
- unjust enrichment
- statutory claims brought under Bus. & Prof. Code section 17200.
These claims are typically made because they are often easier to prove than the elements of trade secret misappropriation.
While trade secret preemption does not displace breach of contract claims, it can significantly limit the claims and remedies that companies may seek when their confidential or proprietary information is stolen.
Differences Among the States:
Other States: The breadth and scope of trade secret preemption varies from state to state. While some states have held that preemption eliminates alternative causes of action for misuse or theft of confidential, proprietary or trade secret information, other states allow common law claims to be brought for the theft of confidential or proprietary information alone or along with trade secret misappropriation claims.
California state courts: In California, CUTSA generally preempts causes of action that rely on the same “nucleus of facts” as a trade secret misappropriation claim. A recent California Court of Appeal decision reaffirmed that CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies based upon misappropriation of a trade secret. Accordingly, California state courts typically do not allow both trade secret and non-trade secret claims to be brought for the theft of company information.
How does a California employer prevent its business from walking out the door along with a departing employee? In most jurisdictions, the employer could have the employees sign a non-compete agreement. Not in California.
One of the notorious employment laws that separates California from other states is its long-standing prohibition of employee non-compete agreements. California’s …