Protecting Trade Secrets from Former Employees

While non-compete agreements are unenforceable in California, former employees are required to compete fairly against his/her former employer. In that regard, ex-employees are not permitted to use a former employer’s proprietary or trade secret information.

Customers are generally the lifeblood of any business. Depending on how customers were developed by a business, a customer list can qualify as a trade secret which former employees are prohibited from exploiting in competition with a former employer. A fast food restaurant is unlikely to develop a customer list which would qualify as a trade secret whereas a roofing company’s commercial customer list can qualify as a trade secret affording it protection from use by ex-employees.

Courts have focused on the efforts or “sweat equity” the business devoted to development of its customer list. The greater the time, effort and expenditure of resources, the more likely a court will find a customer list is worthy of trade secret protection.

Additional requirements must be fulfilled in order for a customer list to qualify as a trade secret. One of those requirements is that the employer took steps to maintain the confidentiality of the information. Some steps recognized by the court include advising employees the information is a trade secret, labeling the information as confidential/trade secret, limiting access on a “need to know” basis and maintaining the information in a secure location.

Employers can and need to take steps to protect their proprietary and trade secret information from misappropriation by former employees turned competitors. California law will protect the diligent employer which takes the proper steps.