Taking advantage of today’s relatively low unemployment rates, employees have begun to “job-hop” – move from one lucrative opportunity to the next – with increasing frequency. According to recent reports posted by CNBC and MarketWatch, this is particularly true in professions such as sales, where this type of intra-firm mobility is more commonplace. While such mobility may be beneficial to the employee, it presents unique challenges to employers, particularly in industries that rely heavily on long-term customer contacts and relationships.
So, how do you protect your business when your best salesperson, your rental agent, or a key manager jumps ship for a competitor? The answer is: plan ahead. By taking specific steps in the pre-employment and hiring process, you can ensure that your business’s most precious resource, its customer information, is protected when an employee decides to leave.
Restrictive Covenant Agreements: A Business’s Best Friend
The most critical step in protecting proprietary or confidential customer information is for an employer to require that any new hire sign a restrictive covenant agreement. In such contracts, employees agree to refrain from competing against your business after their employment ends, from soliciting your customers, from recruiting your other employees, or from using your confidential information for the benefit of others.
Each state’s law is different in how it treats common clauses in restrictive covenant agreements. For example, some states take favorable views of noncompetition clauses, while other states ban their use outright. And noncompetition clauses are coming under greater legislative scrutiny around the country. Moreover, a noncompetition clause may not provide the full array of protections that your business needs. Depending on how your clause is worded, it may not prohibit your former employee from using your customer list and other confidential information in future employment.
Generally, such an agreement should spell out the types of information being protected, the acceptable uses of such information, and what the employee is prohibited from doing with the information once the term of employment ends. By clearly delineating the employee’s responsibilities at the outset, you can hopefully nip any potential future problems in the bud or prevent them from arising at all.
State and Federal Protections Can Help
Even absent a contractual agreement regarding your customer list and confidential information, such data may still be protected by statute. Most states have adopted a version of the model Uniform Trade Secrets Act (UTSA), which, along with its counterpart, the federal Defend Trade Secrets Act, offers significant protections for information such as customer lists. If your state has adopted a version of this act, then your customer list may already be protected.
There remains an important caveat: to be protected under your state’s version of the UTSA, you may need to show that your customer list has independent economic value. Some courts have found that a customer list containing only customer names and addresses does not retain independent value to a business owner.
To create – and therefore protect – a valuable customer list, one best practice may be to include additional information specific to each customer listed — include product purchase history, records of service needs, etc. Any additional information included on your customer list will strengthen your claim that the list has independent economic value and, therefore, warrants protection under the law.
Keeping Trade Secrets Secret
Whether you have attempted to protect your customer list and confidential information via contract or you are relying upon statutory protections, you must make every effort to maintain the secrecy of the information you are seeking to protect. If the information is generally available or you cannot demonstrate that you took reasonable steps to protect its confidentially, it is unlikely to be covered by any statutory protection. It will be more challenging to argue for its confidentiality. Accordingly, employers should take steps to ensure that their customer lists remain in-house and that there are internal policies, processes, and technological protections in place to police the use of confidential information.
Simple, commonsense policies and procedures can go a long way toward protecting the vital assets of your business. Knowing who should have – and who does have – access to information is critical. If you don’t know who knows your secrets, then it is unlikely they will remain secrets for long.
In today’s day and age, information is money. If you don’t protect your information, someone else will use it to their advantage. However, by taking specific steps, in concert with legal counsel, you can ensure that you are doing everything possible to protect your customer lists and other confidential information from walking out the door with a former employee and onto the desk of a competitor.
Henry Rauschenberger is an attorney in the Baton Rouge, Louisiana, office of Jones Walker LLP. Henry litigates in state and federal courts across Louisiana, representing clients in litigation involving business and commercial transactions, environmental and toxic torts, oil and gas, construction, public contracts, employment, bankruptcy, and successions, trusts and estates. Henry received his undergraduate degree from Elmhurst College in Elmhurst, Illinois, and his master’s degree from Lamar University in Beaumont, Texas. He received his juris doctor from the Paul M. Hebert Law Center of Louisiana State University in Baton Rouge where he was an articles editor for the Louisiana Law Review.
Parker Kilgore is a partner in the Baton Rouge, Louisiana, office of Jones Walker LLP. Parker represents clients in a wide range of litigation matters in state and federal courts. He assists in prosecuting and defending claims of trade secret theft, unfair trade practices, non-compete violations, confidentiality violations, and computer fraud and abuse. Additionally, he advises clients on strategies to protect their trade secrets and confidential information. Parker received his undergraduate degree from Hendrix College in Conway, Arkansas, and his JD from the Paul M. Hebert Law Center of Louisiana State University in Baton Rouge where he was on the Chancellor’s list.