Employment agreements can be used to educate employees on their obligations, clarify gray areas under the law, and expand the employer’s rights. These agreements often contain language relating to two important intellectual property related issues – the handling of confidential information and the assignment of ownership rights. Often this language is viewed simply as “legalese” without a clear business purpose. Frequently it is taken from a form book or other document without real consideration for whether it is appropriate for a particular employment situation.
Confidentiality language in employment agreements is used to help define and enforce trade secret rights.
Under Minnesota Statute Section 325C, a trade secret is defined as information that: 1.) is not generally know or ascertainable; 2.) provides a competitive advantage, due in part to its secrecy; 3.) is developed at company expense; and 4.) is intended to be kept secret. Without specific confidentiality language in an employment agreement, an employee’s duty to keep information secret is not well defined. That duty will depend on general common law principles and rely heavily on other steps an employer takes. It is not safe to assume that an employee has a duty to keep information secret without a written confidentiality agreement.
A common pitfall is to simply declare that all information is confidential.
Since this is never really the case, the confidentiality clause is attackable on the basis that the employee had no basis for differentiating confidential from non-confidential information. If an employee can’t differentiate information, she or he can’t know if the information was intended by the employer to be kept in secret (the fourth prong of the statutory definition of “trade secret”). Some agreements state that information has to be marked “confidential.” This works fine, as long as the employer is very disciplined at marking.
A better approach is to define what kind of information will be considered confidential and to make it a practice (not a contractual requirement) to mark the information as “confidential.” Such information may include formulas and manufacturing processes; vendor/supplier information; price/cost data; quality control manuals, procedures, and records; proprietary sales information, forecasts, marketing plans; customer lists; internal budgeting information; product margins/costs and strategic business plans.
In addition to defining and identifying confidential information, the contract could also specify a minimum time to retain the information in confidence and the conditions under which injunctive relief is granted. Damages from an employee may not adequately compensate the company for inappropriate disclosure. An agreement for preliminary (and permanent) injunctive relief can make it easier to maintain the status quo by preventing disclosure.