EMPLOYMENT LAW BULLETIN

Vol. 01, No. 01

Courtesy of Eskridge Law, Attorneys at Law

How can you prevent departing employees from using information they learned at your company to start a competing business or join one of your competitors? In most states this would be simple, but California law prohibits enforcement of non-compete agreements. Business and Professions Code § 16600 provides: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void."

How, you may ask, can I possibly ensure employee loyalty without a non-compete clause? The answer lies is in California's Uniform Trade Secrets Act (Civil Code § 3426, et seq.). Under the Uniform Trade Secrets Act, California courts will provide injunctive relief against misappropriation of trade secrets. In order to do so, however, the court must be convinced that: (1) There is an actual trade secret involved; and (2) Misappropriation of the trade secret is occurring or is clearly threatened.

A trade secret is "information, including a formula, pattern, compilation, program, device, method, technique or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Civil Code § 3426. Therefore, in order to be a trade secret, the information must not be generally known and you must be treating it like a secret.

How do you treat information like a secret sufficient to satisfy the Uniform Trade Secrets Act? Although it depends on the circumstances, there are numerous things you can do such as:

• Disclose the secret only to people who have a true need to know.
• Structure work to limit the number of employees who need to know, or break the work into parts so that very few people know the whole secret.
• If the secret is embodied in a document, stamp the document with a trade secrets legend saying something like, "This is a trade secret of XYZ Corporation. Disclosure of the information contained herein is strictly prohibited." If the secret information is on computer, put the trade secrets legend at the beginning and end of the document, or better yet, on every page of the document.
• Have an employee manual which includes a provision that various information constitute trade secrets and that disclosure is prohibited. (Of course, you will have your employees sign an acknowledgment of receipt of the manual.) For even greater assurance you can have employees sign a separate nondisclosure agreement.
• If you have to disclose your trade secrets to parties such as suppliers, etc., have the parties sign non-disclosure agreements.
• Keep your trade secrets locked up when not in use. If you have drawings or customer lists laying around in plain view, there is a good argument that they are not being treated like secrets.
• Use passwords to prevent access to information stored on computers (and don't have the passwords on Post-It Notes stuck on desks and monitors).
• Restrict access to your facility. Make visitors sign in and out, and require them to be escorted. Depending on the type of size of the business, a security guard may be appropriate.

Eskridge Law, Attorneys at Law, may be contacted by phone (310/792-7021), by fax (310/792-7022) or by e-mail (geskridge@ealaw.net). Please visit our web site at ealaw.net or employmentattorneys.net.

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