Wednesday, May 18, 2016

Confidentiality and Trade Secret Covenants in Employment Contracts are Always Valid, and Your Electronic Footprint Tells a Story

Restrictive Covenants in Employment Agreements - Three Contracts in One - Confidentiality, Non-Solicitation and Non-Competition

The typical Employment Agreement often include three separate "restrictive covenants," Confidentiality, Non-Competition and Non-Solicitation, which are frequently referred to collectively as "my non-compete." However, each of these covenants are enforceable independent of one another and, in some instances, one such covenant in a given contract may be enforceable, even though one or both of the others are not. 

Click Here to jump to Post outlining Trade Secret law in Pennsylvania

However, while judicial determinations that a given Non-Compete or Non-Solicitation clause is totally unenforceable are commonplace, I am unaware of any legal decision making such a holding where a Confidentiality clause is concerned.   

Always Valid
and Enforceable
Confidentiality Clauses in Employment Contracts Are Always Binding, Valid and Enforceable - and They Never Expire 

Insofar as I know, all Confidentiality covenants are valid, and they never expire.  That is so in large part, I believe, because even absent such a clause, your employer's tangible and intellectual property is just that - its property - and it is a crime in all 50 states to take someone else's property.

Hence, no matter how much blood, sweat and tears you poured into your job over the years, no matter what role you played in creating the property in question in your capacity as an employee and/or no matter how unjust the reasons behind your termination, you may not take your former employer's work papers, electronic information and customer lists with you when you depart from your workplace for the final time, nor may you maintain copies of same you have at home after your employment ends.  

If you do so, and use such information at your new job or in your new start-up business, you are asking for trouble in the form of a Preliminary Injunction

You Leave an Electronic Footprint Every Time You Access Your Employer's Computer Network 
Your Electronic Footprint -
Easily Detected

If you believe you are going to be fired, have just been terminated or plan on resigning next week, it can be tempting to e-Mail some quality materials found on your company's network to your personal e-Mail, or to save your client list onto a thumb drive.  However, doing so is fraught with peril, and could leave to significant hardship (i.e. defending a lawsuit) in the future.

Virtually every mouse click or key stroke undertaken after one enters onto the company's network is recorded, and leaves an electronic footprint.  Leaving such an electronic footprint behind is a prescription for disaster. 

Companies know that employees who have been fired can become fearful about their future, or just downright angry.  They also know that many employees resign because they plan on starting their own business in their area of expertise, or have found a job elsewhere in the same industry. 

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Hence, your employer knows that resigning or terminated employees are often motivated to take company information with them, and will often take steps to do so during the last minutes, hours, days or weeks of their employment.  
IT Forensics Sophisticated 

That is why virtually every employer will have its "IT Guy" examine the departing employee's computer and e-Mail, as well as its own network, in order to determine whether the employee has copied or taken any of the company's  electronically-stored information on the way out the door.

If that investigation reveals even a hint of unusual activity, the employee in question will be placed under the company's microscope in the months ahead.  That microscope will include close scrutiny of information the former employee posts on-line, delivers to actual or prospective clients, vendors, suppliers, etc. and/or discloses to friends, acquaintances, former colleagues, etc.

Big Business = Big Brother
Corporate espionage is real, and a company will spare no expense if it believes its corporate strategy, clientele or relationships are at risk.    

Info in Folder Located in an
Open File Cabinet Drawer =
NOT "Top Secret" 
Your Employer's Trade Secrets -They Probably Don't Have Any!

Most Confidentiality clauses include a reference to and a description of the company's "Trade Secrets."  Often, the company's definition of  "Trade Secrets" includes everything from the company's letterhead to its customer lists.  Naturally, every company has some information that it seeks to keep hidden from the eyes of many employees.  However, it is generally understood that common information retained by virtually every business, such as customer lists, etc., is usually not a "Trade Secret" under Pennsylvania law.   Nevertheless...

Your Old Employer's Files, Customer Lists, Advertisements, Sales Forms, Pricing Materials, Order Sheets, Bid and Proposal Forms, Business Contracts, Templates or Materials May Not Be "Trade Secrets," but Using Your Former Employer's Confidential Information to Your New Job or Start-Up Constitutes a Violation of the Confidentiality Clause in Employment Contract 

However, even if the information is not a "Trade Secret," it is still the company's property, and hence if you take it with you when you leave, and use it during your next business endeavor, you may find yourself in HOT WATER! 

While Jail Time Unlikely, Being Sued Stinks!
Violation of a Confidentiality Clause in an Employment Agreement Can Lead to a Determination That Employee is Guilty of Breaching Non-Compete or Non-Solicitation Covenants

As discussed elsewhere, many non-competition covenants are overbroad and therefore unenforceable in whole or in part.  Moreover, companies often have a hard time developing sufficient information that a former employee is violating a non-solicitation restriction at his/her new job. 

As a result of these problems, many companies decide against suing their former employees even if they suspect that the employee is violating the restrictive covenants in their employment contracts.

However, if a company has evidence that the suspected employee downloaded significant information such as customer contact lists, customer contracts, marketing materials or investor prospectuses just days before he/she resigned, any hesitancy evaporates, and the likelihood of legal action increases exponentially.

Therefore, while the Confidentiality clause in your employment contract may on the surface appear to be the least restrictive, and thus least concerning of the 3 restrictive covenants, violations of same often provide the gateway to successful lawsuits filed by former employers against their erstwhile employees.  
Prosecuting and Defending
Confidentiality Clause Cases Since 1991

                                               Philadelphia Area Non-Compete Lawyer

John A. Gallagher is an employment lawyer who represents employees in Pennsylvania.
Click Here if you have questions about any aspect of employment law, from wrongful termination, to wage and overtime claims, to discrimination and retaliation laws, to Family and Medical Leave…

Click Here to e-mail John directly.

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