Monthly Archives: June 2013

Generation Gap in Attitudes toward Confidential Company Files Leaves Young Workers Vulnerable

A 2012 survey conducted by a software company, FileTrek (below), reveals generational gap in employee attitudes toward confidential company documents. A majority (68%) of the Millennial generation (people aged 18-34) believe it is OK to remove confidential files from work, whereas only 50% of people aged 55 plus do. The preferred method? USB stick.

The survey highlights what many will recognize to be a common attitude in the Silicon Valley, namely that “[t]oday’s workforce believes information is an asset to be shared.” (Dale Quayle, CEO of FileTrek) This attitude contributes to the success of Silicon Valley companies. However, in the proprietary information sector, the associated risks may be high for both businesses and employees alike.

For companies, a secure infrastructure and a set of internal policies are extremely important to protect confidential data and to keep income-producing and potentially valuable confidential information under company control. The alternative may mean losing a competitive edge, or losing, period.

For employees, philosophical misunderstandings or “no harm no foul” rationalizations when removing confidential work files may result in termination and exposure to civil liability. At the end of the day, the most secure networks may be compromised if employees do not understand or appreciate the importance of confidential information security and individual consequences. Universities do not prepare young professionals to navigate the pitfalls of a modern workplace when it comes to non-public company information. California occupies a special place in this arena due to the tension between California’s prohibition against restraint on trade (Bus. & Prof. Code §16600, generally known as prohibition against “non-competes”), trade secret law (California Uniform Trade Secret Act, Civ. Code §§3426-3426.11), general contract law and California Labor Code affording employees certain rights, for example §2870 (employee inventions on their own time). Whether they are signing employment agreements for a new job, thinking of transitioning to a competitor or firing up a start-up, stir young people to get advice, understand their responsibilities and rights, and how they fit in the young workers’ worldview.


Why Are Trade Secrets Important When Changing Jobs?

In Silicon Valley, most employment agreements will contain a restriction that employees must keep employer’s trade secret information confidential, even after terminating employment.  This is known as the “trade secret” exception to an otherwise strict mandate by the California legislature against restriction on trade or competition codified in Bus. & Prof. Code §16600 et seq.  In short, subject to several limited exceptions, such as the sale of a business, California employers may not restrict employees from engaging in their profession by having them promise not to work for a competitor after leaving the company as a condition of employment.  However, a former employer may enforce a trade secret clause in the employment contract after employee leaves, for example, to stop the employee from using the former employer’s trade secrets at his new job.  Even though this may appear to restrict the former employee’s ability to practice his profession, the employer does not violate Section 16600 because trade secrets are protected.

Because so much is at stake, disputes arise over what constitutes trade secrets.  Agreements that have overly general language without specifying what should be treated as secret or are not accompanied by a sit-down with the employees to go over the paperwork they are asked to sign, may not give sufficient notice to employees of the types of information they are supposed to treat as trade secret.  Even if the agreements are clear, the information that employer describes may still not be a trade secret under the statutes; it may be not be secret, it may been publicly disseminated, such as on the Internet, it may be generally known in the industry or readily ascertainable by proper means, or it may not derive independent economic value from being secret.  Attorneys evaluate all of these factors and more.

Running afoul of trade secret statutes and employment contracts may expose employees and companies to severe economic consequences in the form of litigation costs, interrupted business opportunities, loss of reputation or timely market advantage, even if the misappropriation occurred unintentionally or through negligent oversight.  Understanding your obligations under the agreements with your employer is an indelible element of a peaceful and economically undisturbed transition to a new job or starting your own business.  For businesses hiring new employees, it is just as important to take reasonable measures to ensure that incoming professionals maintain confidentiality of third party trade secrets and the employer’s.

Contact us if you are facing any of these issues.

Trade Secrets. What Are They?

Generally, trade secrets are any information, process, formula, or technique owned by a business that is secret, is subject to reasonable efforts to keep it secret, and derives its actual or potential economic value from remaining secret. The big difference between a trade secret and a patent, for example, is that patents are publicly registered.  An engineering drawing, a soft drink formula or particular software code may become subject to a patent and the legal protections afforded to patents against infringement. However, until or unless these become patented, their owner will keep them secret or confidential, known only to select employees or customers, to protect their commercial value and guard them against being copied or stolen by persons who can make use of them.  Typically, but by no means exhaustively, trade secret information may also include pricing, employee salaries, valuable vendor relationships, customer contacts, financial information of the company, marketing plans and strategies, customer purchase orders and various internal documents.

Different legal rules apply to trade secrets than to patents or copyrights.  In California, Uniform Trade Secret Act (Cal. Civ. Code §§3426 through 3426.11) provides protection to valuable confidential commercial information.