Providing Legal Services For More Than 125 Years

Employees Cannot Take Former Employer’s Confidential Information

On Behalf of | May 2, 2014 | Employment Law

If an employee in New Hampshire quits his job, is fired, or is laid off and that employee takes confidential and proprietary information from that employer to use in the future, the employer may very well decide to take legal action against the employee. Even if the employee has not signed a non-competition or non-solicitation agreement which prohibits him from either competing in a particular area or soliciting former customers of the former employer, New Hampshire has adopted the Uniform Trade Secret Act, RSA 350-B which may form the basis for the employer obtaining a court order prohibiting the employee from using that confidential and proprietary information. The legal term of that remedy is called an “injunction”. If the employer is able to learn of the misappropriation early on and seeks and obtains such injunctive relief, the employer may not need to address the issues of damages, but may seek its reasonable attorney’s fees if it is able to prove that the employee willfully and maliciously misappropriated the secrets.

For example, if an employee downloads a customer list or technical specifications for a product when he knows he is leaving his employer and thereafter goes to a competitor, that should be a good basis for the court to determine that misappropriation is willful and malicious. The Court, under the Uniform Trade Secret Act, may order reimbursement of the attorney’s fees of the employer by the employee which can be a very significant deterrent for that employer’s other employees who might in the future be tempted to take such bad acts. Damages may also be obtained under this Uniform Trade Secret Act and if they are proven that the employee’s actions were willful and malicious the Court may award exemplary damages in an amount not to exceed twice the actual damages. The actual damages under the Uniform Trade Secret Act can include both actual loss caused by the misappropriation and the unjust enrichment caused by the misappropriation that are not taken into account in computing actual loss. In other words, if the employee took trade secrets and was able to use those trade secrets to build up his own client base that were not clients that his former employer could prove it would have received revenue from, that employee may still be liable to pay for unjust enrichment for using those trade secrets misappropriated from his former employer to benefit himself. This provision of the Uniform Trade Secret Act is critical to prevent the employee from making the argument that the former employer would never have had that client regardless.

One of the issues in proving actual damages rather than unjust enrichment is that the former employer may have to divulge financial information, such as what are his fixed costs and his variable costs to be able to prove what his actual damages are based upon the lost opportunity to do business with particular clients on particular jobs. Providing such information to a now competitor who has already proven his dishonesty by misappropriating trade secrets can be very problematic even if there is a court order in place restricting the use of that information. Therefore the former employer in pursuing a claim against the employee who misappropriated trade secrets should think carefully about whether or not it wants to proceed forward with a damage claim rather than just obtaining its attorney’s fees if it is successful on an injunctive relief request, if that injunctive relief is comprehensive enough to prevent any further wrongful acts by the employee.

The actual term of trade secrets under the Uniform Trade Secret Act means information including a formula, pattern, compilation, program, device, method, technique or process that: (a) derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (b) is subject to efforts that are reasonable under the circumstances and maintained in secrecy. For example, a list of all the doctors in Nashua would probably not be a trade secret since you could have easily obtained that from a telephone or other easily ascertainable sources. However, a doctor’s list in Nashua that identifies to a pharmaceutical company what that particular doctor has been providing prescriptions in general to patients with a particular ailment over the last year is not readily ascertainable and is valuable to that pharmaceutical company and to a potential competitor of that pharmaceutical company and therefore as long as there is protection to keep that information secret, such as if the information is on the computer and is password protected or in a locked file cabinet in a secure location, that information is likely to be a trade secret.

Sometimes employers want to pile on claims against the former employee and might seek to allege theft of the information is also conversion; however, those types of claims may be precluded under the Uniform Trade Secret Act. If the former employee brought a customer list with detailed information about those customers with him to that employer and when he left wanted to use the list thereafter, it is possible that while the list might be a trade secret of the company, it is not considered a misappropriated trade secret and would be fact dependent on the full circumstances.

On behalf of former employers, I have brought such trade secret claims as well as non-compete and non-solicitation contractual claims if there is such an agreement against former employees. I have also defended in other cases the former employee who is alleged to have misappropriated a trade secret or breached a non-competition or non-solicitation agreement. In each case, the Court determines the specific factual details of that matter, yet in general, it has been my experience that while the Court narrowly construes non-competition agreements to only protect the legitimate business interests of the employer, if there is a trade secret that is misappropriated by the former employee, the Court takes the view that theft is theft. Downloading that customer list on the way out the door is a very bad idea for the former employee.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].