Trade SecretS ATTORNEYS
Can A Former Employee Steal Clients for Their Competing Business?
What happens when your former employee competes with you by stealing your clients? Businesses need to address this question early before it leads to prolonged litigation and serious harm to the business.
The average worker holds ten different jobs before they are 40 years old. Many workers spend five years or less in a job. They spend more time and energy transitioning from one job to another. Often times, the former employee will end up working for a competitor or starting their own competing business.
Businesses have rights when a former employee takes confidential or proprietary information to unlawfully compete. These rights are found in the California Uniform Trade Secrets Act.
What Is A Trade Secret?
The Uniform Trade Secrets Act protects “trade secrets.” In California, a “trade secret” is intellectual property that is valuable because it is not known to the public. The business owner must take steps to keep this information secret. A trade secret can be a formula, program, device, or process. For example, it can be the special ingredient list in a recipe, a business plan, or bid specs for a specific project.
Are My Clients “Trade Secrets?"
Clients can choose who they want to get services from or who they want to work with. This makes it difficult for a business to argue it “owns” the client.
However, a client list may be a trade secret if the information is valuable and the business has tried to keep the information secret. If a business spent a lot of time and resources to learn a client's specific needs or characteristics, the valuable information may be a trade secret because it is not available to the public. But if a business shares its clients on its website or the clients are part of a business directory, the clients' identities are in the public domain. In this scenario, the client list is not likely a trade secret.
What Should I Do If My Former Employee Has Taken My Trade Secrets?
If you think your former employee has taken confidential or proprietary information, here a few steps to consider:
1. Review your business’s policies for how you keep your information secret. If you have spent a considerable amount of time and resources to keep your information confidential, then the information may be treated as a trade secret.
This may include:
Making sure that that the information or your database is password protected;
Having policies in place, including an employee handbook, identifying the information as confidential;
Requiring your employees to sign a confidentiality agreement; and
Marking information as confidential.
2. Limit how you share information. Technology has made it easy for a current employee to download information like your client list to a thumb drive or their personal cloud. Look into encryption software or restricting the use of USB storage devices (such as memory sticks) on your systems.
3. Communicate with your clients. Keep your clients informed if an employee is no longer with your business. If a client tells you that they have been contacted by a former employee who they never spoke with or worked with, the former employee does not have an existing relationship with the client.
4. Review your onboarding agreements with your former employee. Make sure you have appropriate non-solicitation and confidentiality agreements in place.
5. Pursue legal action against your former employee. A legal action and litigation may give you options, including:
A temporary restraining order, preliminary injunction, or permanent injunction, which is a court order that would prevent the former employee from doing something;
Money damages which may include the loss of sales revenue, royalty payments, or unjust enrichment; or
Attorney’s fees and costs if you succeed in your claims against the former employee.
The San Diego-based trade secret attorneys at Garcia Hong Law have represented both sides in litigation – businesses who have had former employees take confidential and proprietary information, and employees (including directors, owners, and managers) who have left to start their own businesses or join competitors. Call us at (858) 255-0163 or email us at firstname.lastname@example.org about concerns when an employee leaves your business.
* This website is designed for general information only. Results may vary depending on particular facts and legal circumstances.