Confidentiality and nondisclosure agreements are one of the ways that a company can protect its trade secret and confidential business information. Having employees sign a noncompetition and non-solicitation agreement is another method to prevent confidential business information from becoming known to the public.
However, in the absence of a non-compete and non-solicitation agreement, a former employee is permitted to compete against his former employer and can solicit his former employer’s customers so long as the former employee does not use his former employer’s confidential information or trade secrets in so doing. Pennsylvania courts have found the following types of information to be confidential and/or subject to trade secret protection:
- Information related to the research, development, marketing, and sale of a product and customer communications;
- Customer lists;
- Manufacturing processes and recipes;
- The company’s long-term strategies, operating costs, and customer negotiations;
- Computer programs developed to achieve a specific result;
- Product formulas; and
- Pricing details for products and services.
This is not an exhaustive list of potentially protected information, and the circumstances of whether information is protectable or not depends on the facts of each individual case.
As a general rule though, customer lists (including services performed and prices charged) are not confidential trade secrets if the information is available from other sources. For example, customer lists and pricing are not confidential if they can be obtained through public information (i.e. the Internet, trade publications, or trade shows) or if the customer simply tells the competing company the price it is charged. Trade secret law also does not prevent a former employee from using his general knowledge, experience, and skill to compete against his former employer.
To successfully prevent a former employee from using confidential information in competition, the employer is also required to take reasonable precautions to guard the secrecy of the information. Pennsylvania courts have found the following to be examples of reasonable precautions taken by a company to protect the secrecy of its information:
- Stating certain information is confidential in employee handbooks;
- Exclusivity arrangements with customers, vendors, and suppliers (including nondisclosure agreements);
- Prohibiting employees from taking information off premises without the employer’s prior, written permission;
- Password protecting confidential information; and
- Designating drawings, formulas, and diagrams as confidential (i.e. placing notice on documents stating that they are property of the company, contain confidential information, and may not be reproduced or duplicated).
If the employer fails to take reasonable measures to protect the information, courts are likely to find that the employee may use the confidential information to compete against their former employer.