Advice on safeguarding company secrets through nondisclosure agreements.
Safeguarding your company's innermost secrets seems a simple matter of getting employees to sign a nondisclosure agreement. But it's easy to make a misstep. And because the courts in many states are inclined to protect people's rights to pursue their own business opportunities, they may bend over backward to nullify trade-secret provisions, says Eric J. Wallach, a litigation partner at Rosenman & Colin, in New York City.
Trade-secret suits, both actual and threatened, are pervasive in technologically sensitive industries, such as software, as well as nontechnological industries, such as retail discounters. Here's how to make a trade-secret provision airtight:
1. Define as narrowly as possible what you want to protect. Whether it's proprietary customers, manufacturing processes, software, or sales formulas, make sure the information cannot be obtained through publicly available sources. If your agreement lumps together the truly proprietary with the merely ordinary, a court may view it as excessively limiting to a former employee and dismiss the whole agreement.
2. Limit the number of people who sign it. While it may seem the safest route is to have all employees pledge their secrecy, it actually makes a trade agreement less enforceable. Ask for signatures from the people you're really concerned about. "If you do it in boilerplate fashion, the court may say you, the employer, clearly haven't thought through where the sensitivity is," says Wallach.
3. Employees should enter into the agreement upon employment. The key ingredient here is that the employee must get something out of a pact. If an employer tries to impose a trade-secret provision after an employee is on board, and gives the employee nothing in return, Wallach says, the courts will strike down the provision. But asking an employee to sign an agreement when she's promoted or given a raise might work. -- Ellyn E. Spragins