My Former Employee is Sharing Confidential Information—Help!

March 10, 2023

As an employer, one of your worst fears may be that a disgruntled or entrepreneurial former employee may try to share your internal operations, documents or trade secrets. What you can do to protect your business in these situations may not always be clear. This article is meant to help you consider your options when you think a former employee is trying to sabotage your business by giving competitors an unfair edge against you.

Can I Protect Myself at the Outset of Employment?

Many employers who work in competitive fields often draft noncompete contracts because employee turnover can severely impact their business. This article won’t address noncompete contracts in-depth, but as a general overview, these can help to limit what a former employee is allowed to do after employment with you.

If they violate the noncompete contract, you can take legal action to enforce it and you may be able to recover any damages you may have suffered. While this can be a relatively straightforward way to protect your business, it might not be an option for you. Further, the employee’s action may not be covered by a noncompete.

What if I Don’t Have a Noncompete, or it Doesn’t Apply?

If you don’t have a noncompete, your remedies to stop a former employee may be limited. Limited, however, does not mean nonexistent.

Many states, and the federal government, have enacted laws to penalize people who acquire and misappropriate trade secrets for economic benefit. Unlike noncompete agreements, the misappropriation of trade secrets doesn’t generally come with geographic boundaries or limitations.

Additionally, these protections don’t only apply to former employees, but they also apply to persons who obtain those secrets through improper means. If someone has been misappropriating your company’s trade secrets, a range of remedies from injunctions to damages can be available to you.

How to Know if Trade Secrets Have Been Improperly Shared

First, what is a trade secret? In Wisconsin, Illinois, and Michigan, a trade secret is defined similarly as any information, formula, pattern, compilation, program device, method, technique or process that (1) derives value from not being generally known and readily ascertainable and (2) is subject to efforts to maintain its secrecy.

Now, what does this really mean? Well, for one, customer lists alone may not be “trade secrets.” The names and contact information of customers you have are readily obtained by proper means, meaning they can’t serve as the basis of a claim for misappropriation of trade secrets.

If you use a specific method or technique with those customers, however, and that information is shared along with the list, you may have an argument that part of the list is a trade secret.

In Ohio, however, a trade secret is defined more broadly. In addition to “the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique or improvement,” a trade secret could also include any “business information or plans, financial information or listing of names, addresses or telephone numbers.”

While this provision is broader and may include customer lists, you must still take reasonable efforts to maintain its secrecy and derive some specific economic value from it not being public.

Second, what is misappropriation? Generally, misappropriation is defined as (1) a person acquiring a trade secret by means that the person has reason to know is improper or (2) a person who discloses or uses a trade secret that was obtained by improper means, accident or mistake without consent.

Finally, what is “improper means?” Generally, “improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy. The purpose of these laws is to protect some piece of proprietary information or technology (that you make reasonable efforts to keep secret) from former employees or others who misappropriate that information for their own benefit.

While these state “trade secret” laws generally look similar to one another, you should always refer to a lawyer who practices in your state for more specific information.

Federal law, through the Defend Trade Secrets Act of 2016 (DTSA), also provides similar trade secret protections as the previously mentioned state laws. It even includes similar definitions for “trade secret,” “misappropriation” and “improper means.”

To qualify under the DTSA, however, your trade secret must be “related to a product or service used in, or intended for use in, interstate or foreign commerce.” A benefit of the DTSA is that, under certain circumstances, it allows employers to take advantage of additional damage recovery and attorney’s fees.

The DTSA doesn’t preempt state law, but it does provide some additional protections and consequences for malicious and willful misappropriations.

Bottom Line

While not every piece of information your business produces is a trade secret, you should be wary regarding what information is shared outside of your business. If you believe an employee or other person has violated your noncompete agreements or has improperly spread trade secrets, you should contact an attorney who practices in your state to see what remedies may be available to you.

This article, slightly modified to note recent updates, was featured online in the Wisconsin Employment Law Letter and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.

Noah Rusch
Noah Rusch