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.

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