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Employers, Employees and Confidential Business Information

Employers, Employees and Confidential Business Information

Employers, Employees and Confidential Business Information

09 May 2014

Recent years have seen an increase in trade secret theft and misappropriation of confidential business information throughout North America. This is probably due to a number of factors, including increased employee mobility, corporate downsizing and the growing recognition of the value and portability of confidential information. Departing employees may walk away with proprietary information on termination or misappropriate it in anticipation of being terminated to enhance their value to other prospective employers or to compete with their former employer. Whatever the reason, it is more important than ever for employers to identify and protect their confidential business information (“CBI” for short).

CBI doesn’t have to be “secret”. Very generally, information can be CBI if it isn’t generally known outside of the company, if time and effort would be needed to find it elsewhere and if it has commercial value. CBI includes, or can include, information relating to internal operating procedures, marketing strategies, supplier and customer lists and other critical information that a company, through its employees, may acquire over time, through considerable effort and trial and error, that isn’t generally known outside of the company and that can give an employer an edge over the competition. Such information can be among an employer’s most valuable assets. But if it isn’t identified and adequately protected, its value will depreciate quickly or, worse, it will simply walk out the door.

The first and most obvious step in protecting CBI opposite employees is to include restrictive covenants in employment agreements. Carefully worded confidentiality or non-disclosure covenants can, in some cases, be nearly as effective as non-compete covenants without being as hard to enforce. “Confidential information” can be defined broadly, but simply calling information “confidential” will not make it so. To be most effective, a confidentiality or non-disclosure covenant should be tailored to the position. The more context and detail there is, the less likely it is to be breached, at least unwittingly. And, in the event of a dispute, courts are far more likely find that information is confidential if the information, the manner in which it’s used and the places or persons where it resides are specifically contemplated in the agreement and accompanying materials. Schedules are a good idea, as are manuals or binders that are marked “Confidential”.

Timing is key. If confidentiality is not adequately communicated to an employee before or at the time of disclosure, it will be difficult or impossible to restrict the employee’s use of the information after the fact or to sue them for breaching any duty of confidence. Not only must CBI be identified as confidential in a timely manner, but an employer must also treat it as confidential at all times. If an employer fails to do so, by implementing and enforcing policies for how its CBI is to be handled, it may lose its proprietary rights in the information. 

Departing employees should be reminded of their duties in relation to the employer’s CBI in exit interviews or termination letters. This will, again, minimize the risk of breach and, in the event of a breach, it will help the employer make the case to the court that the information was confidential, was communicated in confidence, was treated as confidential at all times and that a duty of confidence was breached.

In short, employers should think about identifying and protecting their CBI at all stages of the employment process – from hiring through termination. Depending on the nature of the job, including pro forma confidentiality language in an employment agreement may not be enough. Once it is identified, CBI should only be disclosed on a need to know basis to those with a need to know. Information disclosed by the President at an industry conference is free for any employee to take to their next job, no matter what an agreement might say.