Labor / Employment, On The Job

Protecting Your Secrets (Part 2)

Companies have plenty of remedies available against defecting employees who inappropriately use corporate information.

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whisper secret lawyer lawyers whispering secretsSummary: This is the second of a four-part series on trade secret and non-compete law in the employment context. Check out Part 1 here on non-compete agreements. This article focuses on the key statutes and common law theories relevant to the theft/use/disclosure of trade secrets and other confidential information.

When a company invests considerable resources in developing trade secret and proprietary information, the company’s going to go to great lengths to ensure that information stays confidential. If an employee takes that information and goes to work for a competitor (or starts a competing business), you can bet your bottom dollar the company’s top brass is going to be on the phone with the lawyers as soon as they catch wind of it.

In Part 1 of this series, I talked about non-compete agreements. Most non-compete agreements contain provisions prohibiting the theft/use/disclosure of the employer’s trade secrets and other confidential information. In the event that a defecting employee did not sign a non-compete agreement, however, there are still plenty of remedies available against defecting employees who inappropriately use or disclose the company’s information.

In fact, the lawyers taking a case like this on behalf of an employer have a lot of tools at their disposal. But, until 2016, practically all of the available remedies were state-specific. And so unless there was a basis for diversity jurisdiction, these cases typically had to be brought in state court.

In May 2016, however, the federal Defend Trade Secrets Act of 2016 (DTSA) was signed into law. It creates a civil cause of action for trade secret misappropriation. It was primarily based on a model law, the Uniform Trade Secrets Act, which was created in 1979.

One of the main benefits of the DTSA is that it gives a clear path to federal court, which I think provides a host of benefits. Those are, in my opinion, more attention to written submissions and more efficient means for non-party discovery, among others. Also, federal courts will still have supplemental jurisdiction over other related state law claims as well, and so those remedies (discussed below) will still be available.

The DTSA also provides for the recovery of attorneys’ fees and exemplary (double) damages. But, in order to recover attorneys’ fees or exemplary damages, a provision must be included in the employee’s non-disclosure agreement or in a written policy expressly referenced by such an agreement explaining the whistleblower protections afforded by the DTSA. (Hint: Make sure your client’s standard agreements and policies have been updated to include such a provision.)

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As I mentioned above, there’s also a Uniform Trade Secrets Act that’s been adopted by 48 states. The DTSA emphasizes that it’s not intended to replace or preempt these already-existing state laws, and so those claims are still viable. In reality, though, courts are likely to analyze DTSA claims together with any state law trade secret misappropriation claims, and so the additional state trade secrets claim may not provide any additional relief on a practical level. Furthermore, as courts are starting to have the opportunity to interpret and apply the DTSA, they’ll likely begin using federal opinions analyzing the DTSA when deciding state law trade secrets claims.

Next up, we have the federal Computer Fraud and Abuse Act, which covers computer hacking and electronic information theft. The statute creates criminal and civil remedies against anyone who intentionally accesses a computer without authorization (or exceeds his/her authorized access) and obtains information from a computer.

Many states have also adopted their own statutes creating civil causes of action for misuse of a company’s computerized resources and information. And so if the alleged theft/use/disclosure of the company’s trade secrets involves information stored on a computer, server, or other electronic communications device, a company may be able to use these federal and state statutes as well.

In addition to these statutory remedies, there are also common law claims available.

For example, if a defecting employee had an agreement with the company prohibiting disclosure of certain information or requiring confidentiality, the company would probably have a common law breach of contract claim. If an employee made inappropriate statements to the company’s clients or someone else (such as the media) about the company, the company might be able to sue the defecting employee for defamation or slander.

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If a defecting employee somehow interferes with the company’s business relationships, the company might have a tortious interference claim. If a departing employee solicits his or her employer’s clients or other employees to follow him or her to a new company prior to leaving his or her current employer, the employer might have a claim for breach of the duty of loyalty and/or breach of fiduciary duty.

These are the most common claims and remedies available to a company finding out that one its former employees took, used, or disclosed its confidential and/or trade secret information. In Part 3 of this series, I’ll focus on enforcement issues in these types of cases, i.e., how these lawsuits typically play out and are resolved.

Earlier: Protecting Your Secrets (Part 1)

evan-gibbsEvan Gibbs is an attorney at Troutman Sanders, where he primarily litigates employment cases and handles traditional labor matters. Connect with him on LinkedIn here, or e-mail him here. (The views expressed in this column are his own.)

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