The Hidden Risk in Outsourcing IT
When you hire a third-party IT company to manage your systems, they get access to everything—client data, financial records, proprietary information. Most business owners don’t think twice about it because the vendor has a good reputation. But reputation isn’t a legal protection.
How Missing a Clause Can Destroy Your Trade Secret Rights
The Trade Secrets Act protects information you make reasonable efforts to keep confidential. But if you give an outside contractor unrestricted access to your data without a confidentiality clause in the contract, a court may find you didn’t make reasonable efforts to protect that information. You’ve just lost your trade secret protection—not because someone stole your data, but because your contract didn’t require them to keep it confidential.
What Your Service Contracts Need
Every contract with an outside vendor who touches your systems should include a confidentiality provision. It doesn’t need to be complex. A straightforward clause requiring the vendor to keep your business information confidential and restricting their use of it to the services they’re providing is usually sufficient. That one clause preserves your ability to enforce trade secret protections if something goes wrong.
Beyond IT: Any Service Provider With Access
This isn’t limited to tech vendors. Accountants, consultants, marketing agencies—anyone who accesses your internal data should be bound by confidentiality terms. A short clause in a service contract can make the difference between winning and losing a trade secret dispute down the road.
Video Transcript
Risk of Overlooking Confidentiality Clauses
Think your company’s data is safe just because you trust your IT vendor. Think again, when third party contractors have access to your systems. Your confidential business information could be at risk. And without the right contract provisions, you may have no legal protection. In this video, we’ll show you how a simple oversight, like leaving out a confidentiality clause, can destroy your ability.
To enforce trade secret protections. If you’re outsourcing services, this is a critical watch.
Examples of Common Service Contracts
Another type of contract that you might have is for services that you use. Now, this could be as simple as Google, Microsoft, Adobe for use of their software, or software as a service. Or maybe you have a tech company come in and they help you with a lot, all of your tech needs because you’ve outsourced that.
You don’t wanna have a full-time or part-time IT person on staff. Let’s talk about that hypothetical. Let’s say that you have an agreement that allows you 10 hours of IT support from a local tech company. That tech support company will come in from time to time and help with all of your computers.
How Outside Access Can Threaten Confidentiality
Here’s one huge issue that most businesses don’t attend to. They don’t think about the fact that all of their business secrets are now available to a third party. Now, you might say, but I don’t care about that tech company. They have a great reputation. They’re not gonna share that information with anybody.
But here is the problem. There is a very important law called the Trade Secrets Act, which says, as long as you try to keep reasonably confidential information in your company, then ex-employees or others cannot share it without violating the Trade Secrets Act. But what happens if you don’t try to make sure that you’re keeping that information confidential with a confidentiality provision?
Example of a Trade Secret Breach
In other words, let’s say that one of your employees who didn’t work out copies all of your data, leaves, and then goes and works at a competitor and shares all that data with them. Well, under the Trade Secrets Law, you would say, Hey, that employee just stole all of our secret data. That’s ours. You can’t use that.
That is our competitive advantage data. We kept this secret. We didn’t put it on our website. We didn’t make it known to vendors. We didn’t let customers see it. The only people who had access to it were employees. But remember that IT contractor — they also had access to it. So what happens is in this scenario, let’s say you sue your competitor for using all of your secret ideas and all of your secret data and all that data on the hard drive that your employee took.
The attorney representing that company will need to try to prove that you didn’t make reasonable efforts to keep that information confidential. The attorney will try to show that you actually had outside parties you were contracting with, like an IT company, and you didn’t even ask them to keep it confidential.
You didn’t put any provision in your contract that it should be confidential. This scenario is very similar to cases that have occurred around the country.
Steps to Protect Confidential Business Information
So if it’s important for you to keep information on your hard drives, on your server, and in your emails confidential, there are a couple things you need to do.
One, make sure there’s a confidentiality provision in any contract for someone who has access to your confidential information. And then second, make sure that you let employees know that it needs to be kept confidential — maybe even label certain folders or files as confidential. The idea is the more you do to protect that confidentiality, the more evidence you’ll have later to demonstrate that anyone who stole that information from you violated the Trade Secrets Act.
Key Takeaway for Business Owners
So what’s the takeaway here? Think about having a confidentiality provision in many of your contracts. You need to have it in all of the contracts where the other party would have access to information that you want to keep confidential.
Additional Learning Resources
Now, if you’d like to know more about how to avoid trouble like this, I have a free resource at AronHall.com/free.
I provide information for business owners of small to mid-size companies on how to avoid common legal problems. That includes a PDF. It includes videos talking about important issues. I’m Aaron Hall. I’m an attorney for business owners and entrepreneurial companies. If you’d like, subscribe to this channel so you can get more educational content like this.
