Given the lingering increase in layoffs from last year, companies reducing their workforce face the risk of unauthorized disclosure or use of trade secrets and other confidential business information. Proactively safeguarding these secrets and information is crucial in these circumstances, as it can be challenging to remedy disclosures after the fact. Based on recent reports, companies should be aware of potential risks when undertaking extensive separations.
These companies should understand that departing employees may be tempted to retain or use competitively sensitive or nonpublic information, particularly if they were separated involuntarily. This risk may increase during organizational downsizing or restructuring, wherein personnel gaps can emerge in departments responsible for monitoring and preventing unauthorized access and external transfer of company data. The rise of remote work and related technologies, allowing employees remote access to employer systems and data, poses added challenges.
Risk Mitigation Strategies
Companies can mitigate these risks by first identifying and assessing the full scope of potentially affected trade secrets and confidential business information. Firms should also review internal policies and employee contracts that deal with the definition and authorized use of trade secrets and confidential information and elaborate on post-employment confidentiality obligations of employees.
Furthermore, companies can strengthen their position in potential litigation against the alleged violators by using robust tools such as comprehensive exit interviews, checklists, IT protocols, and carefully crafted separation agreements. These provide opportunities to spot signs of misappropriation early and ensure the safety of data. Additionally, such measures may be useful in protecting whistleblowers and providing proper notifications to both parties as mandated by the National Labor Relations Board’s 2023 decision in McLaren Macomb and the federal Defend Trade Secrets Act of 2016.
Cases for Enforcement
If suspicions of trade secret misappropriation arise, companies should be prepared to take specific actions to strengthen their position during litigation. These include showing reasonable and diligent efforts to protect trade secrets, preserving and gathering evidence of misappropriation, assessing and establishing harm, and seeking injunctive relief swiftly where unauthorized disclosure or misuse is imminent.
Understanding and planning for the trade secret-related risks attached to downsizing can help companies safeguard their most valuable information assets. Quick action to preserve evidence, establish damages and, when appropriate, seek injunctive relief can put companies in a strong position for a successful enforcement action when misappropriation occurs.
The full analysis of this issue can be found at Bloomberg Law. This article was contributed by Melinda Haag and Liza M. Velazquez, litigation partners at Paul Weiss.