What California laws protect trade secrets from ex-employee?

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This is a relatively new, complex and developing area of California law. The following general rules apply:

  • California law protects trade secrets;
  • Tangible and intangible property of your business will be protected;
  • If your company consistently uses agreements governing confidentiality/non-disclosure/non-disclousre and/or non-solicitation of employees and customers, reasonable restrictions generally will be enforced.

A trade secret is: information not generally known to the public, that has independent economic value to the owner, and over which the owner has taken reasonable steps to keep secret/confidential. Key things businesses usually wish to label trade secrets include, intellectual property such as software code, secret formulas (e.g. formula for Coke®) and business methods and processes, client and prospective client lists and information, and other sensitive business information. Information will not be a trade secret, however, unless all of the above requirements are met.

Normally, except for misappropriation of trade secrets, California law strongly favors competition in the marketplace. In fact, any agreement that restrains anyone from engaging in a lawful profession, trade or business is void. Not voidable, void – like it never existed.

Even if the information does not meet all trade secret requirements, however, it is wise to have written agreements with employees prohibiting them from taking or using confidential information with them when they leave the company.

Agreements restricting a former employee’s ability to solicit your remaining employees and clients are generally not valid but there are exceptions when there are trade secrets or confidential information involved. 

To the extent illegal, unethical, improper or bad faith is involved in the competition, courts have demonstrated a willingness to constrain such unfair competition.

While in California an ex-employee is free to pursue their calling and compete against their former employer, they are not exactly free to leverage all of your business’s hard earned competitive advantages learned through the school of business hard knocks. California courts seem to be willing to protect legitimate business interests of employers and remind us that while competition is the American way, implicit in the idea is fair competition.

 

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