Do your Massachusetts employees access business confidential information or trade secrets? Did they sign a Confidentiality or Non-Disclosure Agreement? They should!
An employee confidentiality or non-disclosure agreement (“Confidentiality Agreement” or “NDA”) is a contract with your employees. In the contract, you identify certain categories of information that are confidential and promise to let your employees use the information. In exchange, your employees promise to not disclose or use the information for any other other purpose — even after they stop working for you!
Don’t worry — a properly drafted Confidentiality Agreement does not change the at-will status of your employees. Employees can still be fired at any time for any legitimate non-discriminatory reason. But a Confidentiality Agreement can stop current and former employees from disclosing and using your confidential information for another business!
Massachusetts courts enforce Confidentiality Agreements. But only to the extent that the Confidentiality Agreement protects an employer’s legitimate business interest. What does this mean? Fortunately, courts recognize that protecting confidential business information is a legitimate business interest. But the information must actually qualify as confidential. If your information is not confidential, Massachusetts courts will not likely enforce your Confidentiality Agreement.
So what constitutes confidential information? Sadly, you cannot simply claim that your information is confidential without taking additional protective steps. These steps can include: using Confidentiality Agreements, restricting employee access to the information, limiting public disclosure of the information, and various other steps.
Massachusetts courts look at the following factors to determine whether business information qualifies as confidential:
- How much the information is known outside the business
- The extent to which the information is known by employees and others involved in the business
- The measures taken to guard the secrecy of the information
- The value of the information to the employer and its competitors
- The amount of effort or money spent by the employer in developing the information
- The ease or difficulty with which the information could be properly acquired or duplicated by others
These factors are balanced to determine whether your information actually qualifies as confidential and/or a trade secret.
Fortunately, the standard is not that difficult to satisfy. The following types of information have been found confidential in the right circumstances: manufacturing processes, price lists, marketing plans, customer list, business plans, financial information, software, and lots of other types of information. So chances are good that your business has confidential information that needs protection.
Benefits of a Confidentiality Agreement
So let’s presume that your business has confidential information that it wants to protect. Why do you need a Confidentiality Agreement? There are at least 5 good reasons:
1. Basic Protective Measure
A Confidentiality Agreement is considered one of the most basic protective measures that a business can take to protect its confidential information. If your business does not take this step, future attempts to stop former employees from using your confidential information will be viewed with skepticism by Massachusetts courts. It’s not impossible but why make your job more difficult?
2. Identification of Confidential Information.
A Confidentiality Agreement lets your business specifically identify what categories of information that are confidential and secret. For example, if your business views its pricing or customer lists as confidential, these categories of information should be explicitly identified in the Confidentiality Agreement.
By identifying specific categories, you inform your employees what types of information are confidential and should be handled with care. This lets your employees know that the information is valuable and important and should not be shared with others or left out in the open for everyone to see. Specific identification also prevents a former employee from legitimately claiming that he did not know what information was confidential or secret.
Be advised that you probably can’t claim everything in your business is confidential! Courts do not look kindly on employers who are patently unreasonable and are simply trying to prevent former employees from working in their chosen profession and using their general knowledge, skills and experience to make a living. If your categories of claimed confidential information are over-broad and obviously not confidential, a Massachusetts court may not enforce your Confidentiality Agreement.
3. Choice of Law and Forum
A Confidentiality Agreement also allows you to add a Choice of Law clause that states that Massachusetts law applies to interpreting the agreement. Your Confidentiality Agreement should also have a Forum Selection clause that states that Massachusetts state and federal courts are the exclusive jurisdiction where a lawsuit can be brought.
Both clauses are critical for protecting your confidential information, especially if your employees live and work in other states. For example, if an Arizona employee is disclosing your confidential information, you probably do not want to go to Arizona to enforce your agreement.
Choice of law and forum selection clauses are the best way to ensure that you can sue your employees in Massachusetts and have Massachusetts law apply. If your Confidentiality Agreement does not have these clauses, you might be stuck litigating in your employee’s home state with unfriendly laws, which is not ideal for a Massachusetts company.
4. Establish Irreparable Harm for Injunction
Your Confidentiality Agreement can also specify that your business will be irreparably harmed by a breach (or threatened breach) of the Confidentiality Agreement. This makes it easier to obtain an injunction that stops your employee from disclosing your confidential information.
Courts are hesitant about granting injunctions. One reason is that you must prove that your business will suffer irreparable harm by the employee’s actions. Irreparable harm is harm that is difficult to calculate and cannot be fully compensated by an award of money damages. It is usually difficult to prove because most harms can be fully compensated by an award of monetary damages.
A well-drafted Confidentiality Agreement preemptively solves this problem or at least makes it easier to solve. You simply need to include a clause whereby an employee agrees that your business will be irreparably harmed by disclosure of your confidential information to someone else. This is a reflection of business reality, but makes it easier to prove in court to obtain an injunction.
5. Recover Attorneys’ Fees and Costs
A Confidentiality Agreement also lets you specify that attorneys’ fees and costs are recoverable by whatever party is successful in a lawsuit. This is critical! In the American legal system, each party typically pays their own attorneys’ fees and costs, even if the party wins in court. These costs can be prohibitive and might make you hesitate to bring a lawsuit to prevent disclosure of your confidential information.
But why put your confidential information at risk? A well-drafted Confidentiality Agreement eliminates these costs by having your employees agree to pay your legal fees and costs if you win. This alone makes it worthwhile to have a Confidentiality Agreement!
If your business is thinking about having your employees sign a Confidentiality Agreement, or have already decided that you need one, contact me today to schedule an initial consultation. I will assess the information you have in your business and advise you as to what steps should be taken to protect your information from disclosure.