Protecting Your Business From the Threats Inside
TRADE SECRETS AND NON-COMPETITION AGREEMENTS
One of the areas of my practice that I take the most pride in is defending small businesses in litigation and before governmental bodies such as the Texas Workforce Commission (“TWC”). In fact, one of my earliest successes as a business attorney was one such case.
My client was a local business with a sterling reputation and decades of satisfied customers. The opposing party was a former employee who was terminated for using trade secrets obtained during his employment to steer customers away from our client, and towards another business that the employee had started in secret. Upon his termination, the former employee filed suit for a variety of claims related to his employment. The matter quickly grew into a large and complex case with claims in county court, claims before the TWC, counterclaims, and just about every legal complication imaginable.
After months of expensive litigation, we were ultimately able to mount a defense and prevail against the former employee, but unfortunately this is the classic case where the entire ordeal could have been completely avoided had my client sought legal counsel to establish best practices prior to things going wrong. While the client did some of the right things to protect his business by forming a valid corporation and even having a form contract for his customers, he failed to completely protect himself by implementing policies and having documents created concerning his employees and his trade secrets.
Non-Competition Agreements Can Help Protect Business Information
Unfortunately, scenarios like the one above happen all too often. However, Texas law does provide employers with a litany of tools to protect their trade secrets and the value associated with their company.
One of the most powerful of these tools is a non-competition agreement. Non-competition agreements prevent employees from leaving for a competitor (or starting their own business to compete with the employer) for a period of time after the employee quits or is terminated. Essentially, these agreements prevent employees from wrongfully capitalizing on confidential information (such as customer lists, client lists, business processes, and business plans) that were entrusted to them during their time with the employer. But while these agreements are enforceable under Texas law, specific rules apply.
The Texas Covenants Not To Compete Act requires that non-compete agreements be 1) ancillary to another enforceable agreement, and 2) reasonable. Given that what is “reasonable” depends on the specifics of each business, each employee, and the information sought to be protected, skilled legal counsel can be invaluable to a business by assisting it in drafting its non-compete agreements to ensure that they are enforceable under Texas law.
Texas Law Provides Broad Trade Secrets Protections
In addition to non-competition agreements, Texas law provides several additional tools for companies to protect their trade secrets. The most notable of these is through the Texas Uniform Trade Secrets Act (also known as “TUTSA”). The Texas Uniform Trade Secrets Act is a relatively recent statute, which allows plaintiffs to seek monetary relief, and injunctive relief to protect their trade secrets from misappropriation such as an unauthorized use or disclosure of the trade secret.
Essentially, to recover for misappropriation under TUTSA, a plaintiff must show that 1) a trade secret existed, 2) Defendant disclosed that trade secret without express or implied consent, and 3) that at the time of disclosure or use, Defendant knew or had reason to know that the persons’ knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.
Arguably the most difficult aspect of this test is to prove that a trade secret actually exists. Under the statute, a “trade secret” is defined as “information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers that (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” See § Tex. Civ. Prac. & Rem. Code Ann. 134A.002(6). While this definition allows for a broad category of information to fall under trade secrets protection, it also places high responsibilities on businesses to handle their information with care prior to any misappropriation to ensure that the information is indeed subject to trade secrets protections. In these cases, advice from an attorney with trade secrets experience can be a tremendous help to a business in order to craft best practices and information policies to ensure that trade secrets are protected, and to hopefully prevent misappropriation before it happens.
A Skilled Attorney Can Help Protect Your Business
The information outlined above is merely a basic summary of Texas law and does not cover the full breadth of non-competition and trade secrets characteristics, nor the specific considerations required to determine the best procedures and choices for a particular business. A skilled attorney can discuss your business with you to advise of your best options, and tailor contracts and best practices to fit the specific needs of your business.
Please feel free to make a call today to schedule a free consultation with me to discuss your businesses’ needs.
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