Employment contracts help businesses limit their legal and financial exposure. Every new hire represents a degree of risk for the company. The employee could fail to meet company standards, resulting in performance and disciplinary issues. They might disrupt the culture of the company by causing conflict with their co-workers.
They might also use their position to gain information about how the company operates, only to then try to profit off of that information later. Employees may retain trade secrets for their own benefit if they intend to start a competing company. They could also seek employment with an existing competitor as a means of monetizing what they learn while working for a business.
Business leaders often need to think carefully about how to limit the risk of trade secret infringement by employees. There are two main strategies that employers can use to protect their trade secrets.
With contractual restrictions
The terms included in an employment contract can help limit a company’s exposure and clarify its expectations. Many organizations rely on non-compete agreements to prevent employees from starting businesses in the same industry or taking a job with a direct competitor.
California employers do not have that option, as the state courts usually do not enforce non-compete agreements that limit the rights of employees. However, employers may be able to use non-disclosure agreements to protect trade secrets. They could also potentially use non-solicitation agreements to protect client lists and employee rosters from attempts to poach a company’s resources.
With carefully structured operations
Companies can protect trade secrets by limiting which workers have access to non-public information. Ensuring that workers only receive a portion of a formula or a client list can be a way to protect against the wholesale theft of non-public information. Some companies go to great lengths to ensure that individual workers cannot reverse engineer proprietary processes or duplicate a recipe.
Should an employee violate the terms of their employment contract or engage in unfair competition, the employer affected by their conduct may have grounds to take legal action. Enforcing contract terms, including restrictive covenants and penalty clauses that impose financial consequences, could help businesses protect their trade secrets and limit the risk of unfair competition.