15 Things To Do To Protect Value After April 15

Employment Law Reporter, Ervin Cohen & Jessup LLP

April 15, a date that lives in infamy. That is what FDR said about December 7, 1941, but many people feel the same way about April 15, also known as “Tax Day”. No one likes paying money to the IRS, even those persons who believe the money will go to much needed services and infrastructure. Money represents value, and most of us believe that we can determine how to put value to good use better than our bureaucratic friends. But it is what it is, which is to say that taxes, like death, are unavoidable.

What is avoidable is giving away the other value that almost every business holds and gives it an edge over its competition: INFORMATION. It can be as varied as customer lists, supplier lists, scientific formulas, pricing information, unique procedures, etc. It derives independent economic value from the fact that it is not generally known within a particular industry. And it needs to be protected. So, in honor of April 15, here are 15 steps a business should take to preserve its information assets:

  1. Offer Letter or Employment Agreement. For a key employee, you may wish to create a binding employment contract for a specified period of time. This type of contract can limit the ability of a competitor to solicit a valuable worker. The agreement or offer letter should confirm that the employee is not restricted from accepting the proposed employment in any way. The employee should be forbidden from participating in any business which competes with your business throughout the duration of his or her employment. The agreement should further state that all efforts of the employee undertaken during the course of employment, including drafts, formulas and other ideas, will be the sole property of the employer. Such a clause should contain “work for hire” and assignment language for copyright and trademark issues and must quote Labor Code §2870 for inventions coverage.
  2. Confidentiality Agreement. A confidentiality agreement can provide assistance in defining your trade secrets and confidential information, an essential step in protection both as a practical matter and in a court of law. In addition, a well drafted agreement can create contractual obligations which extend beyond those offered by law. Perhaps most importantly, the mere presence of a written contract may cause an employee and his new employer to have second thoughts before they engage in unlawful competition. The agreement should require the employee to return all your property to you upon termination. Additional post-employment restrictions, such as prohibiting the solicitation of customers, can be implemented where the information qualifies for trade secret protection under the Uniform Trade Secrets Act. A non-interference covenant can be added to restrain former employees from disrupting, impairing or interfering with your business by raiding or soliciting your employees and independent contractors.
  3. Employee Handbook. An employee handbook should serve to reinforce all of the efforts you have undertaken to protect your business information. For example, a confidential information section will put employees on notice as to the information you consider valuable and proprietary. The provision should emphasize that the employees must not disclose the defined information to anyone without your consent and that employees must take steps to ensure that the confidentiality of the information is maintained.
  4. Remind employees of their obligations. Employees should periodically acknowledge the obligations contained in the employment agreement, confidentiality agreement and employee handbook. It should be specified that these obligations continue beyond the period of employment and that the employee has a continuing obligation to maintain as confidential your confidential information and trade secrets.
  5. Restrictions on the use of the company computer system. Employees should be informed that the company computer system is for business purposes only and, as such, is subject to monitoring at all times. Access to individual computers and hard drives as well as any information sent through the company server is often the best method to discover improper conduct on the part of workers.
  6. Limit access to trade secrets and confidential information. Access to computer databases should be restricted through use of an appropriate security software program. Consider blocking inadvertent disclosure through metadata attached to electronic documents. Documents should be kept in a locked filing cabinet or other secure place.
  7. Emphasize the importance of your information assets and the need to maintain confidentiality. Employees should be made aware of the company's practices that are intended to maintain the confidentiality of its trade secrets and confidential information. Periodically remind employees of the procedures to be used concerning the dissemination of this information. In addition, as the nature of the confidential information and trade secrets change, the employees should be made aware of these changes in both the information that the company seeks to protect as well as changes to any related security protocol to combat disclosure.
  8. Maintain access logs. A log or record should be kept of those persons in the company who have access to its confidential information or trade secrets. Rules regarding check-in and check-out procedures should be established and enforced.
  9. Limit access to the company's copy machine. For obvious reasons, a copy machine is a thief’s best friend. Key codes and office devices which restrict a person's ability to use the machine are good ways to limit unauthorized copying. At a minimum, consider moving the machine to common areas to deter potential piracy.
  10. Conceal confidential components. Key ingredients or supplies that are essential to your business should be kept under lock and key. Essential data should be coded for protection. Ingredients that do not represent a danger to human health could be marked by code names instead of the actual ingredient names. This process should begin with the creation of the data or the supplier prior to delivery.
  11. Use contractual safeguards with third parties. Contractual safeguards should be employed in protecting trade secrets and confidential information disclosed to third parties such as your company's suppliers, customers, vendors and independent contractors.
  12. Perform a security check. In addition to security guards and burglar alarms, the company should limit visitor access. Visitors should be escorted and wear tags identifying them as visitors. Further, visitors should not be given access to trade secrets or confidential information without appropriate contractual safeguards.
  13. Clearly identify all protected documents as "confidential." Data, files, drawings and other items which are integral parts of your confidential information or trade secrets should be labeled plainly. Email should include an automatic signature restricting use to the intended recipient.
  14. Identify likely candidates for piracy. The vast majority of incidents constituting unfair competition begin with disgruntled employees seeking to better their position. Ensuring that key employees have appropriate benefits and wages may eliminate their motivation to contact a competitor or create a competitive business. Interactive performance reviews are a good way to measure the morale of your key employees. In addition, a good employment agreement can offer additional protection. Extreme cases merit consideration of providing the employee equity; restrictive covenants tied to the sale of the employee's interest in the business can be enforceable pursuant to Business and Professions Code § 16601, et. seq.
  15. Conduct exit interviews. An exit interview serves two purposes: first, it will serve to remind the employee of his or her obligations as set forth in any employment agreement and/ or confidentiality agreement, as well as underscore the importance of these obligations; and second, it will give the business an early opportunity to investigate any activities the employee may have undertaken which might have breached these contractual obligations or otherwise be considered unfair competition. The employment/confidentiality agreement itself can serve as a guide to the questions to be posed by the interviewer. Example questions include: "Did you return your files, notes, drafts, laptop and cell phone?", "Have you been contacted by any competitor?" and "What are your plans for future employment?"

Although no procedure can absolutely prevent the theft of valuable information, a program for preserving the confidentiality of your assets may greatly reduce the risk of these assets being stolen. Further, should unlawful competition begin, the above steps can provide the tools necessary to assist your legal counsel in stopping it before any serious damage is inflicted upon your business.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters, but rather as general commentary on the subject discussed. Your questions and comments are always welcome. Articles may be reprinted with permission. Copyright ©2015. All rights reserved. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. For information concerning this or other publications of the firm, or to advise us of an address change, please visit the firm’s website at www.ecjlaw.com.



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