Top Secret: How to Prevent Builder Trade Secrets from Leaving Your Company

When an employee leaves to work for a competitor, he or she may have valuable knowledge of the builder’s trade secrets. If the builder has not protected its trade secrets, it may not be able to prevent the former employee from disclosing the builder’s valuable information to the competitor. The former employee could possibly reveal trade secrets, such as important contacts, pricing information, and marketing strategies, to the builder’s competitor.

If a builder desires to protect its trade secrets, the builder has a duty to use “reasonable measures” to safeguard their secrecy. Some actions include requiring employees to sign non-disclosure agreements, including trade secret language in its employment manual, maintaining security of its trade secrets, and vigorously pursuing enforcement actions if someone attempts to impermissibly use or disclose such information.

Before taking these steps, however, an employer should identify the type of information that qualifies as a builder trade secret. Under Texas law, information must meet two requirements to qualify as a trade secret: (1) it must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and (2) it must derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. This means that information that is “publicly known or available” or was not subject to “reasonable means of protection” will not be considered a trade secret. Also, general knowledge and skills employees have previously acquired are not trade secrets.

Examples of information that is commonly considered trade secrets include: processes and formulas, proprietary methods and techniques, engineering notebooks, financial information, cost and pricing information, internal market analyses or forecasts, customer lists, potential business relationships, information about business opportunities, marketing and advertising plans, and personnel information.
Once identified, one of the “reasonable measures” an employer can take to protect its trade secrets is to require certain employees to sign a non-disclosure agreement. Such an agreement identifies the nature of confidential information and creates a contractual duty on the employee’s part not to disclose that information.

The best practice is to require new employees to sign a non-disclosure agreement as a condition of being hired. Likewise, for existing employees who have not already signed such an agreement, the employer should (i) have the them sign such agreements immediately as a condition of further employment and (ii) either offer additional consideration such as a salary increase, promotion, or a bonus, or provide the employee new training or access to new trade secrets.

Another protective measure is to have a written Trade Secret Protection Policy that is included in the employee manual. Including such a policy in the employee manual has several advantages. First, it tells employees how to identify and protect the employer’s trade secrets. Second, it assists management in those situations where trade secrets must be revealed to outsiders. Third, it demonstrates the builder’s commitment to trade secret protection, which can be important in demonstrating the builder took reasonable measures to protect its trade secrets.

If a builder is ever required to enforce a non-disclosure agreement against a former employee, it will be crucial that the builder be able to prove it maintained reasonable security to protect its trade secrets. In addition to the steps recommended above, a builder can:

• place warning labels on confidential documents and computer login screens,
• issue periodic confidentiality reminders to workers,
• put locks on doors and file cabinets,
• have specific procedures for visitors,
• require security passwords for computers and networks and limit access to the computer system,
• monitor electronic mail and building access logs to determine if there is any suspicious activity, and
• have employees who are leaving return all company property and ensure they are no longer able to access the computer and email system.

If a builder learns that a former employee is improperly disclosing its trade secrets, the builder should act quickly to enforce its rights. One of the most common forms of enforcement is for the employer to file a lawsuit and ask the court to issue an injunction ordering the former employee to cease disclosing such information. The builder may also seek to recover damages, which typically include its lost profits and any profits made by anyone who improperly used the trade secrets. Additionally, in certain situations, the builder may be entitled to recover exemplary damages or its attorneys’ fees.

If you need assistance instituting reasonable measures to protect your trade secrets or enforcing a non-disclosure agreement, let Brackett & Ellis, P.C. help you. Contact us here.