Defend Your Secrets!

Everyone has secrets – even businesses.  But secrets can be good.  Customer lists, vendor relationships, pricing and profit margins, even the type of syrup in a coffee shop’s “double secret latte” are valuable information that, if disclosed, could seriously harm a business and give its competitors an advantage.

What is secret, and what is protected by law?  That question has two answers:  the type of information that can be protected, and the steps that must be taken to protect it. 

Employers assume that internal business information is “secret” or “confidential,” and that using such information outside the workplace justifies discipline.  That’s usually true; you can fire an employee, for example, if she compares pricing lists with a friend who works for a competitor.  But the ability to discipline or fire an employee for disclosing sensitive information does not protect the business after an employee leaves.  Nor does it create rights against outside parties who use confidential information. 

Unfortunately, all “confidential” information is not a “trade secret.”  And even if it could qualify for legal protection, information does not become “trade secret” unless its owner takes step to protect its confidentiality.

California adopted a version of the Uniform Trade Secrets Act, a law incorporating legal principles developed over centuries since the rise of a business class in England.  Bringing these principles together law resolved some if their uncertainties and gave businesses a roadmap to protect (and enforce) the secrecy of their valuable information. 

In order to qualify as a “trade secret” under the act, information must be “a formula, pattern, compilation, program, device, method, technique or process, that (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”   In other words, to protect confidential information, you must show (1) that you can prove some real economic benefit to keeping information secret, and (2) that you have actually taken reasonable steps to protect the information.  Information a business failed to protect, for example by leaving it on a server without password protection, loses trade secret protection no matter how valuable it is.

If a business takes reasonable steps to protect information, then almost anything valuable can be a trade secrets customer lists, sales history, software modifications, production methods (such as using a particular machining process), personnel policies, industry targets.  If a business spent effort to develop a particular “method” or a list of information (such as promising prospects), those may be trade secret.  Taking trade secrets without authorization – known as “misappropriation” – is specifically prohibited by the Act.

Federal law protects trade secrets as well under a specific law, the Defend Trade Secrets Act. This law is likely to become more important in coming years as the Federal Trade Commission moves to prohibit almost all non-compete agreements. Protecting trade secrets is the best defense when an individual moves from one job to another. But beware: it is important to include specific language in confidentiality agreements for the federal law to apply.

Every business should take time to identify and take steps to protect its valuable information in advance.  These efforts may include written confidentiality agreements for all employees, training and periodic notices reiterating a business’ confidentiality policies, marking sensitive documents as “confidential,” limiting access to important information, and designating someone to manage and protect confidential information.  Taking time to find and protect your information in advance does not just protect an employer: it creates protection under the law.  That’s worth the effort for every business.

New NLRB Employer Handbook and Policy Standards - Presentation

On August 2, 2023, the National Labor Relations Board adopted strict new standards for gauging the validity of an employer's written policies.

Under the new standards, employer polices (such as handbook language) are presumptively unlawful if any employee planning to engage in protected activity under the National Labor Relations Act could reasonably interpret the policy to prohibit, or retaliate against, such conduct.

An employer may justify presumptively unlawful policies by showing a legitimate business justification, but the employer must also show that there are no other reasonable alternatives.

The new standard returns to policy first adopted during the Obama administration and rejected by a subsequent Republican-majority Board. Only time will tell whether further reversals may occur depending on the outcome of future elections.

The August 2 decision in Stericycle, Inc. can be downloaded here.

We discuss the new standards, policies likely to be affected, different NLRB General Counsel's guidance, and strategies for compliance in a presentation to PASCO (the Professional Association of Sonoma County) during its 2023 Annual HR Conference in Santa Rosa, California. A .pdf copy of the PowerPoint presentation and embedded links can be viewed here.

Job Posting Wage Disclosure, Annual Reporting Added to Equal Pay Act

As noted last year in a prior post, California law requires employers to pay the same wage to employees performing substantially similar work whenever they possess relevant EEO distinctions such as sex, gender, and race. Employers should expect the law to cause a new wave of employment litigation over the coming years, requiring careful justification of differences with legitimate factors, such as tenure.

A recent SuperLawyers.com article (quoting firm attorney, Richard Rybicki) highlights this emerging trend and the state's new requirements that (1) employers with 15 or more employees disclose pay scale information on all job postings, and (2) employers with 100 or more employees report race, ethnicity, and gender information along with mean and medium pay rates in ten different job categories. Pay data reporting procedure can be reviewed on the California Civil Rights Department website.

The wage posting requirement, part of California's Equal Pay Act, will apply to many more small and medium-sized employers. And unlike large-employer annual reporting, posting requirements are enforced by the ever-aggressive California Division of Labor Standards Enforcement ("Labor Commissioner"). Guidance on posting requirements and other important parts of the law can be viewed on the Labor Commissioner's website.

Employers should continue to monitor wage differences between employees performing substantially similar work, both at hire and as part of regular compliance audits. This is yet another area where an ounce of prevention is worth many pounds of cure!