Trade Secrets Act: Your First Line of Defense
Both federal and state trade secrets acts protect businesses that make reasonable efforts to keep information confidential. If an employee downloads your client list the week before leaving and takes it to a competitor, you can sue under the Trade Secrets Act. The key requirement: you must demonstrate that you actually treated the information as a secret. A brochure you hand to customers isn’t confidential. Internal client data you restrict access to is.
Fiduciary Duty of Loyalty
Most states recognize that employees owe a duty of loyalty to their employer. Acting against the employer’s interests—like stealing client relationships on the way out—is a breach of that duty, independent of any written agreement. This gives you a second legal claim even without a signed contract.
Non-Solicitation Agreements
In most states, you can ask employees to sign a non-solicitation agreement at the time of hire. If you’re handing a salesperson your biggest accounts—say, Pepsi and Apple—a non-solicitation agreement prevents that person from taking those relationships when they leave. The agreement must be signed when you offer the job, not after the fact.
Some states restrict these agreements, so check your jurisdiction. But where permitted, non-solicitation agreements are one of the most effective tools for protecting client relationships.
Three Tools, One Strategy
You have three main legal tools: the Trade Secrets Act, the fiduciary duty of loyalty, and non-solicitation agreements. All three work best when you’ve taken reasonable steps to keep your information confidential and documented those efforts.
Video Transcript
What Can Business Owners Do to Prevent Employees From Taking Client Lists and Confidential Information?
Trade Secrets Act
First, we have the Trade Secrets Act. There is a federal trade secrets act, and then most states have a state trade secrets act. That law says, “If the business makes reasonable efforts to keep certain information a secret, we will call them trade secrets, it is a violation of that statute for an employee to use that information for any other purpose than the company’s goals.”
So if the employee downloads a copy a week before the employee leaves, and then the employee takes it to a competitor or opens a new business, you can sue for violation of the Trade Secrets Act. You can also probably sue for violation of the fiduciary duty of loyalty.
Fiduciary Duty of Loyalty
Most states have built into their common law, which means even though there is no statute, the courts follow this general rule that employees have a duty of loyalty to their employer and they can’t act in violation of that duty of loyalty to hurt the employer.
So there is probably a breach of a fiduciary duty of loyalty claim there. Now it is important in order for employers to enforce that law that they make reasonable efforts to keep that information confidential.
Confidential Versus Public Information
If the employer has a brochure that they provide to customers, that is not confidential information. That is not considered a trade secret. It actually has to be a secret that the employer reasonably keeps confidential.
So if an employee leaves and then they copy the employer’s website, that is not necessarily a breach of fiduciary duty, or a breach of the trade secret law might be a violation of copyright law.
Non-Solicitation Agreements
Using Non-Solicitation Agreements
There is one other thing that you can do in some states. I would say in most states, if employers ask an employee to sign a non-solicitation agreement at the time the employer offers the employee a job, then the employer can sue the ex-employee for breach of that non-solicitation agreement if the employee goes off and starts soliciting or basically breaching the agreement.
How Non-Solicitation Agreements Work
So here is how that works. The employer in most states has to say, “Hey, I am offering you this job.” Like, let’s say, for example, the employer wants to hire a salesperson and the employer wants to hand over some really big accounts to that salesperson.
So I will make a hypothetical here. The employer is a branding agency, and their clients are Pepsi and Apple Computer. And they want to hand those relationships off to an account manager. So, when hiring an account manager, they ask that person to sign a non-solicitation agreement, which basically says, “If you ever leave our company, or we fire you, you can’t take Pepsi, and you can’t take these big companies with you.”
State Restrictions on Non-Solicitation Agreements
That is another way to prevent employees from taking customers with. But there is a catch. Those contracts are illegal in some states like Minnesota and California. They simply won’t be enforceable.
Overview of Protection Options for Employers
So that is a quick overview of some of the ways that you can protect yourself as an employer when hiring employees.
