Employers can protect unique assets; workers have right to make living

Question: A couple of my salespeople are leaving my business, and forming their own business in the same field. I’ve put a lot of time and money into training them, and the clients they serve aren’t ‘their’ clients; they are my clients. Also, these salespeople signed non-compete agreements. What can I do to protect my business?

Response: You do have protections, and so do they. Businesses have a right to protect their trade secrets, and workers have a right to earn a living. This balance can be used to promote both business interests, and workers’ interests.

You have a right to protect your trade secrets. “Trade secrets” means information that has economic value because it is not generally known to the public. In your situation, your customers have budgets, product and service needs and schedules, business plans, and key contact information that you rely on to serve your customers effectively and keep their business. This type of information is usually a "trade secret" of your business -- it’s what you don’t want your competitors to know about your business.

Which points out the second key aspect of a “trade secret” -- you have to take efforts that are “reasonable” to keep the information secret. This means keeping the information within your own company. It also means disclosing this information within your company only to people who “reasonably” need to have or use this information to do their jobs. Often, it also means having a separate, written trade secrets agreement with your employees outlining this information, and confirming their obligation to keep this information confidential. It also usually means that you should take care in how you describe, store and share this information within your company.

When a misuse of your trade secret information is threatened, you have powerful legal rights, including the right to go to court to obtain a court order against the misuse of the information, as well as damages and attorneys’ fees.

But not so fast. Employees also have rights.

Contracts that restrain workers from pursuing a lawful business are void. This means that a noncompete agreement (which often also restrains the employee from doing business with customers, or soliciting other employees in a new or different business) may not be enforceable. Noncompetition agreements may be lawful and enforceable in connection with the sale of goodwill or ownership interest in a business entity, but that is not the situation in this question.

Employees have the right to earn a living, provided they do not misuse trade secrets. Expertise, skill and business acumen are all assets that workers can use in a new business venture. What, in general, should not be used are the types of things that would give the new business a "jump-start": specific contact information, financial information, specialized business forms and the like.

How do employees form and pursue a new business venture without violating the trade secret protections of their former employer? In general, new businesses should announce the new business venture, rather than “solicit” specific clients of an employee’s prior business; develop a marketing strategy and business plan that are distinct from those of the prior business; and follow a trade secrets policy that recognizes the trade secret rights of competitors and formalizes the obligation not to misuse those trade secrets.

So, if the trade secrets of your business are protected, and if your former employees do not otherwise “unfairly” compete, your former employee may set up and pursue a business venture.

The Internet and social media are changing trade secrets practice. Protecting trade secrets is becoming more difficult, and new businesses are increasingly able to effectively “announce” their services without “soliciting” specific customers.

We often hear how “anti-business” California is -- that California law kills entrepreneurs and small businesses. California trade secrets and competition law is a good example of just the opposite: California promotes existing businesses by protecting trade secrets and promotes new businesses by protecting the rights of workers to pursue their profession. Every enterprising worker that departs one business is, after all, able to provide services to another business. If both the worker and the business understand and respect each others’ rights, this transition can -- one hopes -- be handled efficiently and effectively.


Chris Mazzia is an employment, real property and civil litigation attorney with over 30 years of experience. Chris is with Anderson, Zeigler, Disharoon, Gallagher & Gray. Send questions or comments for future columns to Chris at chris.mazzia@azdgg.com; attention: “Law Matters.” This column is not legal advice and is not written for the purpose of forming an attorney-client relationship. Please consult your attorney to obtain legal advice.