Departing employee can be nightmare

Electronic News, March 16, 1998 by Gary E. Weiss, Sean A. Lincoln

These are extraordinarily competitive times. Companies face the daunting tasks of creating innovative products and services, developing and maintaining a customer base, recruiting and maintaining an expert work force, and keeping all of their innovations--and all of those customers and employees--from falling into competitors' hands. These tasks are especially difficult because the most knowledgeable and highly skilled employees are also the most mobile.

When these employees leave their jobs to work for (or start) a competitor, they present an unparalleled risk to their former employer. The loss of a key employee can also signal that other employees may be the target of a broader raid, leading to even more potential problems. What steps can an employer take to minimize the damage when it discovers that a key employee is leaving?

The general rule is that departing employees may take and use elsewhere any general knowledge or skills they acquired while working for their former employers, but may use or disclose the employer's "trade secrets." It is incumbent on the employer, then, to do everything it can to ensure that its most valuable information meets the standard of a trade secret, and that it maintains that status even after its employees move on to competing employers. Assuming a company has protectable trade secrets, what can an employer do to protect itself once an employee announces his or her intention to leave?

* Determine applicability of restrictive covenants and insist on compliance. If an employee's new job responsibility will entail a violation of an enforceable restrictive covenant, the company should inform the employee at once of its intention to enforce the covenant. Be aware that some types of restrictions, such as blanket restrictions on competition, are not enforceable in all states (particularly California).

* Conduct and document an exit interview. The exit interview presents a perfect opportunity to remind the employee of his or her duty of confidentiality, to answer any questions the employee may have concerning that duty, and to obtain the employee's agreement to continue to honor that duty. Ask the employee to confirm that she or he had access to particular trade secrets during employment, and to describe his/her new job responsibilities. Also require that the employee return all company documents, discs and other materials. Emphasize that the company regards information about other employees, such as who is the best at a particular job, who may be vulnerable to a raid, salary information, as a trade secret.

* Search the departed employee's workspace and computer. To ensure that an exiting employee has returned all of the company's confidential information, the company may want co-workers familiar with the employee's record-keeping systems and work responsibilities to search the employee's work space and computer files upon departure. It is surprising how many employees leave a trail of evidence (in E-mails, phone records, fax logs and other files) that they are attempting to misappropriate trade secrets or solicit their former co-workers to join them in a new job.

* Interview other employees. Swift interviews of a departing employee's co-workers allows an employer to accomplish the following:--Check the truthfulness and completeness of what the departing employee said during the exit interview. Intentional deception may raise suspicions about the risk of misappropriation, and is likely to be important evidence in legal proceedings.

--Gather information about an ongoing raid. Sometimes the receptionist or department secretary is the first to know of an allout raid on a company's key employees. Investigation may also uncover current employees who are actively (and improperly) recruiting for a competitor.

--Convince other employees who may be targeted by a competitor not to leave. Convince remaining employees that the company will (and should) take strong actions to protect its trade secrets. If employees understand that misappropriation of the company's trade secrets by their former co-worker endangers their jobs, they are more likely to assist in putting a stop to it.

* Send follow-up letters. Once an employee has left a company and has started his or her new job, the company may want to send follow-up letters to both the former employee and the new employer. The letters should remind the former employee, once again, of his or her duty not to disclose or use the former employer's confidential information.

* Monitor the risk. Early detection of the disclosure or misappropriation of trade secret information is vital to protecting the information from further misuse. Therefore, when an employee leaves to work for a competitor, the former employer should closely monitor any apparent shifts in the competitor's activities. Likewise, an immediate review of the departed employee's work space, computer and phone records is advisable.

* Seek an injunction. If an ex-employee actually uses or discloses his former employer's trade secrets, that employer may have no choice but to seek injunctive relief from the courts. An employer may wish to seek an injunction limiting a departing employee's job duties at his new employer, based on the threat of misappropriation. Though, without a non-compete agreement, such injunctions are unusual, some courts find that the risk of so-called "inevitable misappropriation" is great enough to warrant this type of relief.