July 1, 2021

Five Policies to Help Avoid “Unforced Errors” By New Hires That May Lead To A Trade Secrets Misappropriation Claim

Company new hires sometimes commit “unforced errors” when departing one company and joining another, leading to trade secrets disputes with the prior employer that could have been prevented by following basic rules and guidelines on departure. A common example is a departing employee bringing to the new company files containing confidential information belonging to the prior employer that were required to be returned or discarded. Even if the new employer did not know the new hire was bringing such information, the possession and potential use of the information by the new hire can lead to exposure for both the employee and the new employer. A strong and clearly defined policy setting forth the company’s rules and expectations prior to joining the company may help avoid mistakes from being made in the first place, and also provide protection for the company in the event a dispute arises. But the key is to address the issue up front before any mistakes are made. Particularly when hiring employees from a direct competitor, it is a good idea to include certain rules and expectations in an offer letter or written policy communicated to the new hire before they even leave their prior employment position.

Here are rules and expectations to consider including in the offer letter or policy communicated to the new hire which may help avoid them making mistakes on the way out the door which also protects the company in the event of a dispute:

1. Departure Notification. Disputes can arise when a departing employee communicates with customers or co-workers before leaving their current job in a manner that suggests disloyalty to the current employer. One policy to consider is explaining to the new hire that before leaving their current position, the new hire should avoid discussing the fact that they are leaving with any of customers or co-workers of their current employer. The new hire should seek direction from the current employer regarding what, if anything, they should tell customers and co-workers about their departure.

2. Return Files and Data of Prior Employer. The failure of the departing employee to properly handle the return of files and electronically stored information used during prior employment also can lead to disputes. The policy should state that the company expects the new hire to adhere to their current employer’s policies regarding return of company property and the return of any files or electronically stored information obtained during employment.

3. Do Not Use or Disclose Confidential Information of Prior Employer. New hires who bring with them confidential information belonging to their prior employer create a risk of a claim of misappropriation of trade secrets against both the employee and the company. The policy should make clear that the new hire must not take or bring with them any of the former information, whether in hard copy or in electronic form, and the employee should never transfer or upload any such information onto the company’s computers or systems. The policy should make clear that the company expressly prohibits the use or disclosure of confidential information of the prior employer protected by law.

4. Disputes Over Solicitation of Former Co-Workers. Disputes sometime arise when a departing employee solicits his or her former co-workers to leave and join the employee at the new company. The company should evaluate whether the employee signed any restrictive covenants or confidentiality agreements with the current employer. To avoid potential disputes, the policy should direct the new hire not to solicit his or her former co-workers, also state that, if the new hire is contacted by a former co-worker regarding possible employment with the company, they should direct the potential candidate to the appropriate person within the company.

5. Use of An Announcement Regarding Change of Employment. Disputes also can arise when the new hire communicates with customers of the former employer about their intention to continue doing business at the new company. If there is a risk that the former employer could claim that the identities and contract information regarding its customers are “trade secrets,” the policy should direct the new hire to use an announcement of new affiliation to inform customers of the change of employment. This type of an announcement can help avoid a claim that the employee used trade secrets solicit the customers. The policy should explain that the new hire’s first communication to customers that he or she previously dealt with at his or her prior employer should be a simple, tombstone-type announcement which states that the employee has left the prior employer and provide the new contact information without any solicitation to do business. The employee should avoid initiating contact with these customers until the announcement has gone out and the customer responds with a willingness to do business. The policies can be modified depending on the circumstances and issues unique to the company. Setting forth certain basic rules and expectations in a company policy to a new hire before joining your company can help avoid the “unforced errors” that commonly lead to avoidable trade secret disputes and also can benefit the company to show the measures it took to avoid such violations in the first place.