A recent survey showed that 60% of workers leaving a job take information with them.  According to an article on employee data theft in the Washington Post, almost 80% of terminated employees who admitted to taking employer data admitted that they knew it was against company policy, or had signed a written agreement prohibiting the act.

Contact lists are a classic form of “confidential information” or trade secrets.  Trade secret law is one of the few areas of intellectual property law which is not governed by federal statutes:  trade secrets and confidential information are protected by state law.  This means that the law varies from state to state.  However, most states closely follow the definitions and principles of the Uniform Trade Secrets Act and the Restatement of Torts.  According to the Restatement, a trade secret

may consist of any formula, pattern, device, or compilation of information which is used in business and which gives [the business] an opportunity to obtain an advantage over competitors who do not know or use it.

Restatement of Torts 2nd, section 757.

Written agreements and NDA’s with employees typically cover contact lists and other confidential information
Most employers require their employees to sign a written confidentiality agreement or nondisclosure agreement (NDA).  These agreements require the employee not to disclose trade secrets and confidential information, and also not to use any confidential information in any manner except for the benefit of the employer.  This includes any use in a subsequent job.  Well-drafted NDA’s will continue to be in effect even after termination, to provide continuing protection by contract.  Employees taking email lists, electronic documents, photocopies of information, customer or supplier contacts, or pricing information will be potential targets for a lawsuit for breach of contract.   If an employer suffers lost profits, or the secret status of a valuable formula or strategy is made public and devalued, the employee could be liable for tens of thousands of dollars in damages.

State laws protect confidential information and trade secrets even where there is no written agreement
While the law favors the protection of confidential information and trade secrets by written agreement, most states protect this form of intellectual property against disclosure or use, even in the absence of a written agreement.  Employees frequently assume that the lack of a written agreement means that information is free to use.  Most states have statutes on the theft or misappropriation of trade secrets.  In most states, an employer must only show that (1) the information incorporates a trade secret; (2) the employer took reasonable steps to preserve the secrecy of the trade secret; and (3) the employee misappropriated the secret or used improper means, in breach of a confidential relationship, in order to bring a successful lawsuit against the employee.

Michigan trade secret law
A famous Michigan case illustrates the dangers of employees providing confidential information to third parties.  In 1999, a website operator named Robert Lane was sued by Ford Motor Company for posting confidential documents and photographs on a website.  The confidential information was provided to Lane by current and former employees, in violation of their employment confidentiality agreements. Was Lane himself an employee, or former employee?  No.  Had he signed a written agreement with Ford Motor Company regarding its confidential information?  No.  Nevertheless, the court held that Lane had probably violated the Michigan Trade Secrets Act.  See Ford Motor Company v. Lane, 67 F. Supp. 2d 745 (E.D. Mich. 1999), for details.

Not all information disclosed in confidence may be protected
Employers typically claim that any business-related information is “confidential information” or a trade secret.  The law does not reach that far.  Information which will not be protected, even if spelled out in a written agreement, includes information which:

• enters the public domain through no wrongful act of the employee
• is received by the employee from a third party without similar restrictions regarding non-disclosure
• is furnished to a third party by the employer, without similar restrictions regarding non-disclosure
• is approved for release by written authorization of the employer
• was possessed by the employee prior to the effective date of employment, or a written agreement
• is developed by the employee independently of confidential information received during the employment relationship

Attempts by the employer to protect this information will typically fail.   Written contract terms which do not exclude these common law exemptions from coverage are against public policy and are typically not enforced by courts.

Confidential information must be maintained “confidential” to qualify for protection
The most common mistake made by employers is to require all employees to sign a confidentiality agreement or NDA, but then fail to exercise the ordinary care required to maintain the “secret” status.  Publishing “confidential information.”  The best way to meet the requirement to preserve confidentiality, is to require a written agreement with every party coming into contact with the protected information.  Allowing one employee to take a contact list to a subsequent employer will result in a loss of protected status for that information.

The cat’s out of the bag?  There still may be liability
Keeping this legal framework in mind, it might seem like a trivial exercise to avoid liability:  merely make the information public, and then it’s no longer protected under the law.  While public disclosure may result in a loss of trade secret status under the law of many states, the law may still be enforced against the wrongful discloser — and in many cases, even against a third party, where the party had reason to know that the information was considered to be a trade secret.

Written NDA’s and Confidentiality Agreements make responsibilities clear
The basic function of a contract is to clearly set out the ground rules for a commercial relationship in order to avoid costly legal disputes that might arise from different interpretations of the law.  In the confidential information and trade secret arena, there are fifty states, so there are fifty different laws, and as many or more interpretations.  Given the patchwork nature of the common-law and statutory framework in protecting business information, while employers without written agreements may ultimately be able to enforce their intellectual property rights against employees in the absence of a written agreement, it’s foolish not to have one.

Resources

• The Citizen Media Law Project:  Misappropriation of Trade Secrets
• The Citizen Media Law Project:  State Law — Trade Secrets
• Michigan Uniform Trade Secrets Act