United States: If You Have Confidential Information, Keep It Confidential!

Last Updated: July 24 2015
Article by Shep Davidson

I've been involved in many cases where it is alleged that someone violated his or her non-compete agreement or misappropriated the company's confidential information or trade secrets. Often, the key issue has been not what the former employee did, but what the company did not do to protect the information it contends is proprietary. The issue of failing to protect one's confidential information and trade secrets was highlighted recently in the Appeals Court decision of Head Over Heels Gymnastics, Inc. v. Ware.

Head Over Heels operated a gymnastics academy, and in 2006 it hired Harriet Ware as an employee at will to work primarily with its high-level gymnasts. By 2012, while still employed by HOH, Ware (during non-work hours) began developing a business plan to start her own gym. Eventually, HOH terminated Ware, and she decided to execute her business plan. This ultimately led to approximately 30 HOH gymnasts leaving to join Ware's new facility.

HOH sued Ware for a variety of torts, including misappropriation of trade secrets, to wit, its list of gymnasts, their families and all of their contact information. In this regard, HOH contended that everyone at HOH "understood" that its customer list was intended solely for the purpose of HOH's business and was neither publicly known or available. Nevertheless, as the Appeals Court noted:

Head Over Heels appears to concede that: (i) it made its customer information available to all staff, employees and gymnasts and their families without restriction or limitation; and (ii) it never informed Ware or any other person to whom this information was distributed that the information was confidential. Nor, beyond vague generalities, does Head Over Heels identify any steps it took to ensure that its information remained confidential or secret.

Thus, even if the HOH customer list ever had been its legally confidential information, the Appeals Court ruled that, as a matter of law, it was not confidential by the time Ware may have used it to solicit business for her competing venture.

So what could HOH have done – and what can you do – to protect against confidential information being used by a former employee (or anyone else) who wants to compete? For starters, if you have confidential information, let everyone with access to it know that it is confidential, either through a designation in the company handbook, when they are given access to the information for the first time and/or any other obvious way. Next, limit access to the information to those people who have a need to use the information for business purposes. Finally, keep the information in a secure location, which could include anything from storing hard-copies of confidential document in a locked file cabinet to providing special password access to certain computer files.

While there are no hard and fast rules as to what you must do to preserve confidentiality, the good news is that a company's efforts in this regard are measured by a standard of reasonableness, not perfection. So if you have information that you believe is important, confidential and/or propriety, take some time to set up reasonable systems to protect that information. Failing to do so can be as bad as sending that information out to your competitors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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