Can you compel an ex-employee to keep company secrets?

Briefcase. (Photo by: Marka/UIG via Getty Images)
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Dear Annie: Help! One of our top IT people just left to go work for a competitor, giving us only a week’s notice, and we just realized that we never asked him to sign anything regarding the proprietary information he has had access to for the past several years. We don’t use non-compete agreements because they’re illegal here, but ordinarily we do ask senior people to sign a document promising that they won’t reveal confidential data.

This person—who knows so much it’s making us frantic, frankly—never signed anything because he started from a lower-level job and then, when he got promoted (twice), nobody thought about it. Is there anything we can do now to make sure he doesn’t spill the beans to his new employer, or is it too late? — Kicking Ourselves in California

Dear K.O.C.: Yikes. It’s easy to see why you’re in a tizzy about this. For companies built on proprietary intellectual property, “the thought of losing employees who have access to those assets is an absolute nightmare,” says Silicon Valley IP attorney and author James Pooley. “After all, HR can take back a departing employee’s keys and company laptop, but how do you erase the valuable knowledge in his or her head?”

You can’t, of course, but take a deep breath and relax. Pooley thinks you may be able to contain the damage. Pooley recently finished a five-year stint as deputy director general at the World Intellectual Property Organization in Geneva, where he was in charge of the international patent system. He is also the author of a new book, Secrets: Managing Information Assets in the Age of Cyberespionage.

The main thing working in your favor is that you ordinarily ask people with access to company secrets to sign nondisclosure agreements (NDAs). “If you have taken formal steps to protect information, including things like training employees in security procedures, most courts will back you up” if a dispute over confidential data ever gets that far, Pooley says. “A judge is unlikely to find against you based on this one oversight.”

More to the point, you can probably avoid a courtroom altogether. “In my experience, it’s usually enough to remind the person who quit that he is under an obligation not to reveal trade secrets, which are protected by law in most states, as well as by your company policy,” says Pooley.

“Have a lawyer write a letter emphasizing that you expect your former employee to abide by that,” he suggests. “Then send a letter to his new employer, saying essentially the same thing. You do have rights here, and you can often get the result you want just by asserting them.” Since your competitor is, without doubt, well aware that you could sue them for making commercial use of anything confidential your ex-employee may reveal, a little bit of legal saber-rattling usually works.

The larger question, of course, is how you’re going to stop anything like this from keeping you up at night in the future. It’s probably no consolation, but you’re far from alone in having promoted your ex-employee without considering how much you were increasing his exposure to trade secrets. Most employers don’t think about asking people to sign NDAs when they move up the chain and into sensitive jobs, notes Pooley.

“It’s a hassle to make an NDA part of your checklist every time you’re thinking about promoting someone,” he says. “The easier way is to have everyone in the whole company sign one.” After all, even the most junior staffers might come across proprietary information, perhaps by accident, while doing their jobs.

What’s more, Pooley adds, employers should ask everyone to sign another document, called an assignment of invention, which clearly states that the company owns any new intellectual property someone creates using company resources.

Why? “Let’s say you hire someone who is not a programmer and whose job doesn’t include writing code,” says Pooley, who has seen this situation more than once. “Nonetheless, he or she writes a valuable piece of software. Without a written invention-assignment agreement, a court may well question who owns it, the company or the employee.” If the latter, there’s nothing you can do to stop him or her from taking it elsewhere or selling it to the highest bidder.

One more way to increase the chances that confidential information stays safely locked up in departing employees’ heads, Pooley says, is to “never skip an exit interview. Even if there’s no reason to believe that the departing employee has any plans to breach company confidentiality, an exit interview is a good opportunity to reiterate your concerns, and emphasize that you’re determined to protect the company’s intellectual property.”

This conversation should include a review of what exactly the employee knows that you consider off-limits to outsiders, since “the potential for harm isn’t limited to deliberately stolen data,” observes Pooley. “Simple misunderstandings about what’s confidential or proprietary, and what isn’t, can also lead to distracting, expensive litigation.” And nobody wants that. Good luck.

Talkback: Would you sign a nondisclosure agreement if your employer requested it? What about an invention-assignment agreement? Leave a comment below.

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