Avoiding Trade Secret Litigation When Hiring Individuals From Rival Companies

When companies consider the subject of trade secrets, they are usually concerned with how to protect their own proprietary information. We have addressed how to protect trade secrets many times in this space, advising employers to have clear written policies that each employee must agree to via signature. Of course, state law and industry differences can affect that process and content, so always talk to your employment law attorney about how best to formulate enforceable policies.

The less-discussed part of the issue concerns hiring employees from a rival company. What steps can you take to prevent the former employer from filing suit against your company based on the claim that your new employee is revealing trade secrets? Boston-based legal firm Mintz recently outlined some procedures that reflect my suggestions to clients. Here are the highlights.

The first step starts as soon as you hire the individual. Include a directive against disclosing trade secrets as part of the new-hire checklist, with signed acknowledgement from the employee. This immediately puts the new employee on notice that your company does not tolerate the disclosure of proprietary information, lessening the possibility of trade secret disputes and litigation. Require the employee to identify agreements signed with the prior employer and have your counsel review them and advise your company on enforceability and how to approach the former employer if necessary. If you consider the employee at high risk of improperly using the rival company’s trade secrets, you can monitor the new hire’s computer system.

Company leadership must set a tone “at the top” by making clear that improper disclosure is an unacceptable activity in your corporate culture. Formally discourage managers from asking incoming employees to share confidential information from former employers.

If you receive notification from the former employer claiming that the employee is using its trade secrets, take the claim seriously. Ask for specifics about the type of information allegedly being disclosed, then investigate the claim to confirm or disprove the allegation. You may wish to assign the new hire a different position temporarily to minimize client contact or opportunity to use the previous company’s confidential information. Whatever steps you take during the investigation, carefully document everything.

For companies on the other side of the equation, finding evidence that a former employee is trying to use your secrets in a new position with a rival company, putting your rival on notice may put a halt to the activity. Anything from a phone call to a formal letter to a lawsuit that includes a temporary restraining can serve as “notice.”

As with all formal company policies, consult your employment attorney for guidance on how to ensure that trade secret policy is compliant with law and can be effectively enforced. We are happy to help.


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