Best Practices Before An Employee Leaves For A Competitor

Best Practices Before An Employee Leaves For A Competitor

Part 2 On Protecting Trade Secrets & Employee Mobility

By Karl Kronenberger
Partner, Kronenberger Rosenfeld

This is the 2nd in a series of three articles on employee mobility:

Article 1 - Frontal Lobotomies and Employee Mobility in California, California Trade Secrets & Inevitable Disclosure;
Article 2 - Best Practices Before An Employee Leaves For A Competitor;
Article 3 - They’re Leaving For a Competitor. Now What Do You Do?

When an employee announces they are leaving for a competitor, don’t underestimate the damage they can do if they steal your trade secrets.

Even the biggest tech firms struggle to keep their confidential information protected, especially when employees leave for a competitor.

It’s certainly not a situation that you want to face. Once they’ve left, you’ve lost control of the situation and the potential damage can be devastating.

Consider these recent high profile stories.

An ex-Apple engineer was arrested July 7 at San Jose International Airport preparing to board a flight to China. He has been charged with stealing confidential information pertaining to Apple’s autonomous car project.

Six former and current Fitbit Inc. employees face federal indictments, alleging they stole trade secrets from Jawbone, a defunct fitness wearable device maker.

In both cases these individuals face convictions of up to 10 years in prison and $250,000 in fines per count.

And, with less high profile drama, but just as strategic, one of our clients discovered that their star sales representative downloaded a sales database to his laptop before he went to a competitor. We immediately filed a lawsuit against him and his new employer. The case was successfully resolved before our client suffered any significant financial harm.

So, what’s the lesson in these stories?

Be Prepared.

You can’t afford to ignore the financial damage that can result from ex-employees misappropriation of trade secrets. You need to be ready for the worst. That means you should establish robust controls before employees leave. Not doing so can lead to a cascade of time-consuming, expensive problems after the fact.

Indeed, setting up controls ahead of a resignation can actually prevent, and even create compelling disincentives for key employees to leave for a competitor. And it can help you avoid big litigation fees.

Have they already left? Now what do you do?

Steps To Take Before An Employee Leaves

• Establish Logging for All Key Systems
  This may or may not be possible, depending on an employer's type of network, but establishing systems that log access to key files can help to quickly identify whether a departing employee has taken key files. Ideally the logging systems would include file servers, employee desktop computers, and company laptops issued to employees. For instance, if an employer knows that an employee saved gigabytes of sensitive data to a USB drive weeks before giving notice, the employer is in a strong position to take action.
  
• Seed Databases
  If key information is in a database, seed the database. It can help prove misappropriation or copyright infringement. So, let’s say a star sales executive leaves for a competitor. Months later, he solicits business from an email that has been seeded with data. This will establish that he stole confidential data before leaving.
  
• Confidentiality Agreements with Employees
  It goes without saying that employers need detailed confidentiality agreements that explicitly state what constitutes a trade secret. The goal should be to eliminate any ambiguity and argument that gives an employee a reason to say they didn’t know what was confidential. If an employee changes a job within the company, employers should revise their confidentiality agreements and get them signed. As confidential information and trade secrets evolve within the company, employees should re-sign agreements that provide an update about what is confidential.
  
• Confidentiality Agreements with Third Parties
  Former employees can argue that purported trade secrets are not secret because third parties (i.e. vendors or partners) had access to them without signing a confidentiality agreement. There is case law in many states that supports this defense. So, be sure to get signed confidentiality agreements from anyone or any company that had access to trade secrets.
  
• Clarify Lack of Privacy in Work Emails Systems
  Employers should include a provision in the employee manual stating that employees have no privacy rights in emails (including personal emails) that are sent through company-owned email accounts. This will avoid any potential argument that an employee has privacy rights in their company email account and thus an employer cannot search it.
  
• Prohibit Password Sharing
  Employers should prohibit employees from sharing user accounts for any official business. All employees should use their own assigned accounts for all work performed at work. If misappropriation occurs through a shared account, or shared computer, then an employer cannot identify who the wrongdoer is.
  
• Limit Access to Sensitive Data
  Adopt a policy that provides employees access to sensitive data only to the extent they need to access that data. Access to sensitive data for any other reason would constitute unauthorized access.

Summary

Without preventive action taken by an employer well before an employee exit, there is often no smoking gun evidence that an employee actually misappropriated trade secrets. In the cases of the ex-Apple engineer and the ex-Jawbone employees, their former employers had logs, or other forensic evidence, of the employees either taking trade secrets before leaving or using the trade secrets after leaving. An active, ongoing compliance program, which includes preventive measures like the ones explained above, is the best defense against expensive and time-consuming legal wrangling.

We advise on all aspects of setting up programs to protect against trade secret misappropriation. And, we can assist you with an employee resignation - before, during, and after they leave.

Please feel free to contact me. I look forward to assisting you with this highly strategic area of your business.

Click here for a free copy of our Checklist On What To Do After An Employee Has Left. It will provide important suggestions for actions to take after an employee announces their resignation.