By Michael A. Smith, Partner, Carlile Patchen & Murphy LLP
Today it is common place for employees to transition through several employers during their professional careers. So how does a business protect its trade secrets and confidential business information from going out the door with departing employees? In general, Ohio law protects trade secrets as long as they are protected by the employer. The essential questions then become “what is a trade secret” followed by, “what must an employer do to protect it”?
What is a Trade Secret?
A trade secret is information that derives independent economic value from not being generally known and is subject to a reasonable amount of secrecy. Obvious trade secrets include:
- Customer Lists
- Manufacturing Processes
- Secret Formulas
- Operational Information
How Do You Protect a Trade Secret?
It is not enough that a business has information that would otherwise qualify as a trade secret. The business must actually take steps to protect that information. Merely stamping all business information as “confidential” will not do the job.
One way to maintain sensitive and confidential information as such is to make employees aware of the confidential nature of the information to which they have access. This can be accomplished through an employee handbook or a contractual agreement. Contractual restrictions can take many forms and are often incorporated in an Employment Agreement or a Non-Competition Agreement. It is becoming increasingly difficult to enforce “overly broad” non-compete provisions against former employees. Many states now have legislation specifically addressing non-compete agreements, often with restrictions limiting an employer’s ability to enforce them. At this time, Ohio does not have any statutory requirements or prohibitions against non-compete agreements. When enforcing a non-compete agreement in Ohio, courts attempt to balance the legitimate interest of the parties weighing the employer’s interest in protecting its property against the employee’s right to use his or her skills and experience in their chosen profession. In evaluating whether or not an agreement is enforceable, Ohio courts will consider the duration of the restriction and the territory to which it applies and balance those factors against the damage that the employee might do to the employer’s business. Non-Competition Agreements are not necessary to protect legitimate trade secrets and employers should use them carefully and not as blanket restrictions. A non-compete agreement should be carefully tailored to the specific situation and employee.
Businesses may also employ Non-Solicitation Agreements to protect their interests and essentially these Agreements prohibit employees from soliciting the customers of the employer. These Agreements are often easier to enforce than Non-Competition Agreements and Ohio courts will look to whether the challenged solicitation is unfair competition, such as solicitation in combination with the use of confidential information, breach of fiduciary duty, and intent to injure the former employer’s business, or deception.
The most useful contractual means of protecting trade secrets may be to have all new employees sign a Confidentiality or Non-Disclosure Agreement at the time of their hiring. If properly prepared, these Agreements should specify the confidential nature of much of the information to which employees are given access and specify how that information is to be protected and returned in the event of termination of employment.
Another common sense means for protecting sensitive information is to keep it separate from non-sensitive information. Such steps may include:
- Limiting computer access to certain sensitive information.
- Establishing and enforcing a sign out procedure documenting the access to certain sensitive information.
- Keeping adequate backup records of sensitive information.
- Destroying or otherwise removing sensitive information from the premises which is no longer of use and not otherwise required to be maintained at the workplace.
One final way to attempt to protect sensitive information is to conduct an exit interview with all departing employees that emphasizes the employer’s expectation that the employee will continue to respect the employer’s proprietary business information. This is also a good time to remind the employee of their obligations pursuant to any Confidentiality or Non-Disclosure Agreement, or other agreement that restricts the employee after leaving the company.
If you have any questions about protecting your company’s trade secrets or other proprietary information, please consult with one of our business attorneys.
Protecting Business Secrets in a Mobile Workforce