The proposition that a customer list can constitute a trade secret is well settled and unremarkable. But because California strongly protects the right to compete, a former employee can lawfully use a trade secret customer list to “announce” a new business affiliation. The question of whether an announcement is a solicitation, or a cover-up for other soliciting activity, is the troubling question California employers face when employees jump to a competitor.

Employers often put a lot of effort into protecting their confidential customer lists, including requiring employees to sign confidentiality agreements, carefully watching for signs that former employees have taken or used confidential information, and engaging in legal battles with former employees over misappropriation. The fight between an employer and former employee over the use of a confidential customer list – namely, whether the use crossed the line between announcement and solicitation – can be costly and create uncertainty. Additionally, a new employer may be hesitant to hire the employee if it would result in a risk of trade secret litigation.

Given California’s legal framework, there may be another option to consider: monetizing the customer list by giving the employee the option to license or buy it upon his or her termination. If an employee can pay to use a customer list for all purposes (not just an announcement), he or she can part ways with a former employer with more finality, and a new employer can have confidence that its new employee can communicate with and even solicit his or her old customer base without the danger of a trade secret lawsuit. This option also emphasizes that the customer list has value, which will be important if the employee misappropriates the list instead of acquiring it. And if the employer believes it is likely to lose customers when the employee leaves (whether from misappropriation or a lawful announcement), this option provides at least some revenue that would have otherwise been lost.

More to follow…