Protecting Trade Secrets: Confidentiality and Restrictive Covenants in Employment Agreements

Trade secrets are the lifeblood of any business, but what happens when an employee leaves your company and takes your trade secrets with them? This is where confidentiality and restrictive covenants in employment agreements come into play.

Defining Trade Secrets

A trade secret is any information that is not generally known or readily ascertainable by others, that gives your business an economic edge over competitors or customers, and which you have taken reasonable measures to keep secret. Examples of trade secrets could be a unique process, a formula, a method, or a compilation of information.

However, not all confidential information qualifies as a trade secret. Ordinary business information, such as customer lists, pricing information, or marketing plans, may not qualify as trade secrets unless they derive independent economic value from not being generally known.

Confidentiality Agreements

Confidentiality agreements, or non-disclosure agreements, are legal contracts between an employer and an employee that restrict the employee from disclosing confidential and proprietary information. These agreements are essential for businesses to protect their trade secrets.

For instance, consider a Philadelphia-based software company that has developed a unique algorithm, giving it an edge over competitors. The company would have its employees sign a confidentiality agreement to prevent them from revealing this algorithm to anyone outside the company, thus protecting its trade secret.

Restrictive Covenants

Restrictive covenants are clauses in an employment contract that limit an employee’s actions during and after their employment. These typically include non-compete clauses and non-solicitation clauses.

A non-compete clause prevents an employee from working for a competitor or starting a competing business for a certain period after their employment ends. For example, a coffee shop owner in Philadelphia might include a non-compete clause in their employment contracts to prevent employees from opening their own coffee shops in the city within two years of leaving.

A non-solicitation clause prevents an employee from soliciting an employer’s clients or customers for their own benefit or another company’s benefit. This could protect a Philadelphia-based marketing agency from former employees luring away its clients.

The Importance of Protecting Trade Secrets

Your trade secrets are the unique elements that distinguish your business from the competition. They are the proprietary knowledge, techniques, and processes that give your business an edge in the marketplace. These trade secrets are invaluable assets, whether it is a secret recipe, a specialized manufacturing process, or a unique marketing strategy.

When these trade secrets fall into the wrong hands, they can severely compromise your business’s market position. Competitors could replicate your products or services, undercutting your unique selling proposition. This could lead to lost sales, reduced market share, and a significant decrease in your business’s value.

The loss of trade secrets can also damage your business’s reputation. Customers and clients entrust businesses with their information and expect them to protect it diligently. If a business fails to protect its trade secrets, it could raise questions about its ability to safeguard other confidential information, losing trust among customers and stakeholders.

The legal repercussions of failing to protect trade secrets adequately can be severe. Businesses may face lawsuits for negligence or breach of contract, resulting in costly litigation and potential financial liabilities.

Implementing robust measures to protect trade secrets, such as confidentiality agreements and restrictive covenants, is not just a good business practice but an absolute necessity. These protective measures form a line of defense against potential threats, ensuring that your trade secrets remain just that—secret.

Our Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Can Protect Your Business and Trade Secrets

As a small business owner in Philadelphia, you should consider seeking legal counsel to help draft and review these agreements. At Sidkoff, Pincus & Green P.C., we are committed to helping businesses like yours navigate the complexities of trade secrets, leaning on our extensive experience to assist you with this critical aspect of your business. If you need guidance on protecting your company’s trade secrets, speak with our Philadelphia business lawyers. Complete our online form or call us at 215-574-0600 to schedule a consultation. Located in Philadelphia, we serve clients in Pennsylvania and New Jersey.