Avoiding Trade Secret Misappropriation
in Employee/Employer Relationships

Hiring and firing employees is a delicate business with regard to trade secrets. Work performed that develops into trade secret material and that was created within the scope of one's employment ultimately belongs to the employer. Thus, the employee cannot use the trade secret he or she created for the employer after the employment relationship has terminated, provided the employer has taken adequate steps to protect the trade secret material.

Some employers learn painful lessons through costly litigation that could have been avoided if the employer had implemented a trade secret protection program. This program should establish a confidential relationship with employees and establish evidence of security measures with respect to trade secret material. The program and the trade secret material should be updated and audited annually.

An essential part of a trade secret protection program is employee confidentiality agreements that notify the employee of what information is considered a trade secret and provide evidence that the employer is taking proper steps to maintain secrecy. The confidentiality agreement also provides the employer a breach of contract claim, in addition to a trade secret misappropriation claim, if a lawsuit ensues.

Confidentiality agreements also may include other important provisions, such as noncompete clauses or obligations to assign patents. However, it is important to check the specific state law regarding noncompete clauses, since many have statutes that limit the scope of such covenants. Under section 103.465 of the Wisconsin Statutes, a covenant is enforceable only if it is necessary for the employer's protection, does not contain overburdensome time and geographic restrictions, and is reasonable to the employee.

In the absence of a written confidentiality agreement, there still is an implied duty not to disclose confidential or trade secret information in an employer/employee relationship. However, the presence of a confidentiality agreement substantially strengthens an employer's case should a lawsuit arise.

When hiring new employees, it is important to have them sign both a confidentiality agreement, and an agreement stating that they are not bringing any trade secret or confidential information with them to the new employer. This will help shield the new employer from any lawsuits for trade secret misappropriation filed by the former employer.