For the second post in our series on actions that employers can take to prevent employee theft or improper disclosure of company data, we’re focusing on protecting data through the use of employee confidentiality, nondisclosure, noncompetition and nonsolicitation agreements.
These agreements can provide great protection, but they can also be full of tricks and traps if not well-drafted or properly executed.
Multi-state employers are at especially high risk if their agreements are not well drafted because state law varies widely. For example, some states such as California and North Dakota prohibit non-compete agreements in almost all circumstances and many other states have unique and idiosyncratic laws limiting or restricting employee confidentiality and noncompete agreements.
One item to keep in mind as it relates to confidentiality agreements, is that the desire to include everything but the kitchen sink in the definition of “confidential information” must be tempered by the fact that if “everything” is confidential, then nothing is.
Another wrinkle is that federal agencies, such as the Equal Employment Opportunity Commission (EEOC) and National Labor Relations Board (NLRB) are attacking overbroad confidentiality provisions, arguing that such provisions interfere with employee rights under federal labor and employment laws.
For example, in Muse School CA v. Trudy Perry, a NLRB Administrative Law Judge (ALJ) ruled that the MUSE elementary school’s confidentiality policy violated the National Labor Relations Act (NLRA) because its prohibition against disclosing confidential information included not only MUSE trade secrets and confidential business information, but also information about MUSE employees and “compensation paid to MUSE owners and employees.” This type of restriction, according to the NLRB, “suppresses” employees’ right under the NLRA to discuss their wages and other terms and conditions of employment.
Additionally, while the school argued that it could not have violated the NLRA because it never actually enforced the confidentiality language, the ALJ disagreed, ruling that even maintaining such language is a violation of the NLRA.
In EEOC v. CVS Pharmacy, Inc., the EEOC attacked a severance agreement used by CVS Pharmacy, Inc. that included a confidentiality clause prohibiting the employee from disclosing confidential information without prior written permission of CVS’s chief human resources officer. The EEOC argued that this policy was unlawful because infringed on employees’ right to talk to the EEOC, participate in an investigation, and file a Charge of Discrimination.
So, what does all of this mean? In a nutshell it means that having well-crafted, enforceable contracts in place with your employees is a critical part of any trade secret protection program.