Trade Secrets and Confidentiality - Business protection and Improper Interference

Posted by Jim Stroud

August 26, 2008

California Courts recently upheld a well known law here in our wonderful State - they upheld that Non Compete agreements are Not Legal and cannot be defended in a Californian court of law.. Well of course that is, unless it was due to a Sale of a business, between partners, or between members with a Limited Liability co-operation.

Wonder why any company was that silly to even try to invoke that type of agreement here in California and then try fight it.. This is and should be a well known business factor in California.. What an expensive oversight.. you see this very interesting State, it is very fond of allowing Fair and Reasonable Competition, and they believe that Non Competes will narrow and limit unfair competition by former employers.

BUT, here is a little known fact and a Huge Oversight that many do not recognize. California Courts Do uphold Confidential and Non Disclosure Agreements, as well as the agreements that Protect the companies’ Trade secrets, and agreements of non Solicitation of Employees..

Many people are under the impression that Non Competes fall under the same umbrella of Non Disclosures, and obviously that is Not the Case.

In our industry, there are ardent arguments about the Non Compete, or unfair competition, or what a company can and cannot own.. many argue the fairness of these agreements and some say that many of these agreements limit competition as well as create competition

Personally I do appreciate California’s stance on the non Compete, - They are unfair to the employee and of course to future employers, and competitors. It does limit fair trade, and viable competition, which can also create monopoly, and unfair advantages.

As a business owner I am also a firm believer in the Non Disclosures, and the proprietary information agreements which protects Trade Secret Information and what I especially like is also protection in the act of how one Gains that Trade Secret, which is also know as Misappropriation of Trade Secrets. That is Acquiring a Trade Secret or even Using that Trade Secret by someone who knows that they gained that information through ways that were “improper”.

See this is all falls under Unfair Competition. Federally and through State Law.

Now what is a Trade Secret?

According to NOLO In most states, a trade secret may consist of any formula, pattern, physical device, idea, process or compilation of information that both:

* provides the owner of the information with a competitive advantage in the marketplace, and
* is treated in a way that can reasonably be expected to prevent the public or competitors from learning about it, absent improper acquisition or theft.

In California, the tort of unfair competition includes “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading.” California Business and Professions Code § 17200.

In our industry, yes a trade secret can also include a company directory, or even names of employees, and if one has acquired that directory through directly utilizing improper means or knows that the information they have, was acquired through improper means.

Also be careful in Aiding or abetting another in Breaking their contract. You see, it is indeed Not illegal to offer a person a job in any way, but.. if you are speaking to a person in a company who has signed a non disclosure agreement, and convince them to break that agreement by revealing secretive information about that company (including names) well you are also involved as an accessory in breach of contract and on top of that, if you lied to gain that info, then there is the “Misappropriation of the Trade Secret’.

Quoted from LectLaw Tortious/Wrongful Interference (In Business Relationship)

“It is not unlawful or improper, standing alone, to hire away someone else’s employee so long as the person doing so wants to use the employee’s services in advancing his own business rather than with the intent of destroying the other employer’s business. This is true regardless of how much the loss of the employee may inconvenience his former employer.”

The mere fact that someone’s activity has injured another in his business does not mean that the
latter may recover because, in a free enterprise system, a businessman has no legal complaint concerning a loss resulting from lawful competition, including competition for the services of skilled employees. If the means of competition are fair, the advantage gained should remain where success has put it.

” … but “It also becomes unlawful when the inducement is made through the use of untruthful means, or for the purpose of having the employees commit wrongs such as disclosing the former/current employer’s trade secrets. “ (which could include the names of employees)

In closing, simply put – companies are in business to make money, and one way to do that is to protect their more valuable assets. Their employees are an important asset, because of the What the employee knows, and the Who the employee knows. What and Who, can create major harm for the employer.

Thus Employers will do anything to protect those trade secrets. As a recruiter, I really would take the time to learn effective ways to recruit and protect myself from a prospective lawsuit.. yeah you may win, but that victory will be hollow when you get the legal bill..

My thoughts, there are excellent recruiting training/trainers in this industry.. Take time to learn how to recruit without a ruse call. Heck, do it for the industry, even if you don’t want to do it for yourself.. that nasty stuff does run down hill, and really affects the image of your peers

ABOUT KAREN MATTONEN, CAC, CSP

Karen is an experienced, successful recruiter who operates her own business and is actively involved in many industry organizations and activities. Her recruiting career began with Snelling Corporation. In 1998, after a successful tenure as a recruiter with Snelling, Karen struck out on her own, founding Advanced Career Solutions (ACS). ACS focuses on recruiting for the HVAC Industry. Karen has achieved accreditation as a California Accredited Consultant (CAC) through California Staffing Professionals. She has also gained her Certified Staffing Professional Certificate (CSP) through American Staffing Professionals. (www.americanstaffing.net)

She has a new and future-oriented vision of what recruiting can and should become: a profession we can be proud of for its ethical standing, professional conduct and ability to build great organizations. Her doing-well-by-doing-right philosophy is shaking up the status quo in an industry that needs to be shaken. She does this with conviction, leadership, and a distinctive voice that cries out for change.

Karen was a co-creator of the landmark webinar event – “EEOC Discrimination Debate.” This event featured senior members of the Equal Employment Opportunity Commission (EEOC) and staffing industry experts discussing and debating difficult issues about discrimination in today’s workplace environment. Company executives, hiring managers, recruiters, and human resource professionals from across the United States were invited to participate in the free Webinar and live panel discussion. Karen also served as one of the panelists on the discussion team in the March, 2006 event.

As co-host of the popular podcast “The Recruiters Lounge,”Karen discusses her frank opinions on the recruitment industry with her co-host, Jim Stroud.