Paul Mengel, counsel with D.C. based law firm PilieroMazza, shares his legal view on confidentiality/non-disclosure agreements.

No matter how collegial and successful a workplace you have created for your employees, attrition is an inevitable fact of life in business. When departing personnel have been privy to hard-won confidential and proprietary company data, the thought of that information falling into the hands of a competitor have caused many a sleepless night for business owners. This article is intended to outline some steps that the prudent executive should take to preserve and protect intangible company assets that could walk out the door on a thumb drive, a CD, or even between the ears of a departing colleague.

Confidentiality or non-disclosure agreements are increasingly commonplace among parties entering into business relationships, especially since the high-tech revolution. Similarly, in the employment context, in order to eliminate any ambiguity in the mind of an employee as to what the company considers confidential, proprietary and/or a trade secret, the employee who is about to be made privy to such information should be presented with a written agreement upon hiring.

The language pertaining to confidential information might be part of a larger agreement setting forth such related terms as compensation, benefits, non-competition, etc., or it may be a stand-alone document, limited to the agreement to maintain the confidentiality of an enumerated class of documents and data. Whatever the case, it should be laid out in the document in clear and unambiguous terms what the company considers proprietary, what the employee is agreeing to do, and not do, going forward to preserve the confidentiality of the data, and the penalties to which the employee agrees to submit, should the information be disclosed.

In addition to the foregoing, the agreement could also contain such typical provisions as: those addressing the length of time the agreement shall be in effect;

  • An acknowledgement that irreparable harm will result if the information is disclosed, mandating the return to the employer of all protected information;
  • Naming the choice of law and venue for disputes; and
  • A provision stating that if the employee violates the agreement and litigation results, the violator will be responsible for the company’s attorneys’ fees incurred in the enforcement action.

Irrespective of how well the confidentiality agreement has been drafted, some departing employees will simply convince themselves that they will not get caught, or be so anxious to assist their new employer to gain a competitive advantage that they will disgorge their former employer’s valuable data. What, then, at that point can an employer do prevent, or mitigate, resulting damage? If there is evidence of theft of confidential information by an ex-employee, or an indication that confidential company information has been, or is about to be, used by another party, then a well-drafted confidentiality agreement will be the ticket the former employer will need to get the appropriate court to issue an injunction, ordering the offending party to refrain from use of the information.

Federal and state courts alike have procedures for the entry of  an emergency restraint, typically called a temporary restraining order (“TRO”), that can often be obtained the same day the court papers are filed, and which can then be served on the parties in possession of the confidential information, ordering them to “stand down” until further notice. Emergency injunctions are extraordinary remedies and usually require a showing that irreparable harm will result if the injunction is not entered, that the moving party has a substantial likelihood of succeeding in the case, that the impending harm to the company outweighs any that might be caused by the injunction and that the public interest will not be harmed if the injunction issues.

The litigation process related to TRO’s and the follow-up thereto is beyond the scope of this article; the point is that in the absence of that agreement that you had the ex-employee sign, the odds of emergency relief being granted are significantly more remote.

In sum, you have worked too long and too hard developing your trade secrets and other valuable proprietary information to risk it falling into the wrong hands, courtesy of an ex-employee. Take the time on the front end of the employment relationship to enter into a well-drafted confidentiality agreement to protect your proprietary assets. While not a guarantee that they will never be disclosed, either intentionally or negligently by a former colleague, they serve as a strong deterrent to doing so and will be invaluable aid in obtaining judicial relief in order to “put the toothpaste back in the tube.”

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