You’re shell shocked. Super Sales Company’s best sales person Sally Star is sailing on.
She’s arrived to work on this last day of the month, picked up her commission check and shared The Shocker.
She quits, effective today. More bad news? Her new gig is your Biggest Competitor. Even worse? Sally Star has 5 years of history with your company. And your clients. In fact, she has the best and closest relationship to your clients.
A quick call to Helen in HR reveals more joy. Sally was hired two months before your company started making employees sign the Employee Manual/Confidentiality Agreement.
Great. Then you talk to your IT department. It’s confirmed. Yesterday, Sally downloaded the company client information to her PDA.
Your client list has just grown legs.
Misappropriation (theft) of trade secrets, by a former employee, can be devastating to a business. In Texas, an employer can protect its trade secrets from former or current employees who “use trade secrets, confidential or other proprietary information for their personal benefit or to the detriment of their employee” even if she did not sign a non-compete agreement. In Sally’s case, she owes the company a fiduciary duty to not disclose its trade secrets. If Sally breaches that duty, then Super Sales Company can sue for damages or an injunction.
In Texas, proving misappropriation (theft) of trade secrets requires Super Sales Company first to prove that the trade information being taken qualifies as a “trade secret” and that the company actively protected its trade secrets. Texas courts have defined a trade secret as “any formula, pattern, device or compilation of information which is used in one’s business, and which gives an opportunity to obtain an advantage over competitors who do not know or use it.”
Super Sales Company must then show (a) a breach of a confidential relationship or improper disclosure of the trade secret; and (b) use of the trade secret without the company’s authorization. Though Sally is not allowed to use a trade secret for her benefit or Super Sales Company’s detriment, Sally may use her general knowledge, skills, and experience acquired during employment to compete with Super Sales Company.
So, what if Sally memorized the customer list? No help to her. Texas courts do not apply the “memory rule.” Texas courts generally review the difficulty and methods used to obtain the “trade secrets,” and the ease of duplication through other sources. Thus, if the information is not readily accessible from the industry, and Sally memorizes the entire list, Super Sales Company can still hold her liable if she gained the information during her employment.
TOP 5 PRACTICAL PRACTICE POINTERS
- Include a confidentiality provision in your employee handbook or non-competition agreement and get it signed by the employee;
- In those documents, describe specifically what the company claims to be a “trade secret” and that such “trade secrets” are confidential and the property of the company;
- Limit access to company “trade secrets” to only those with a “need to know;”
- Conduct thorough exit interviews and require all departing employees to returnhard copies and delete soft copies of company “trade secrets” and require a signed statement that there are both no more copies and that the “trade secret” is confidential;
- Consider providing those employees who have a “need to know” with a company-issued PDA as the only place where “trade secrets” may be copied and which must be returned when the employment ends.
For more information, see M.N. Dannenbaum, Inc., v. Brummerhop, 840 S.W.2d 624 (Tex. App.–Houston [14th Dist.] 1992). Although some states have adopted the “Uniform Trade Secrets Act,” Texas is one of a handful of states (including New York) that has not adopted the UTSA.