Employers should, depending on the sector and individual needs, consider making sure that their non-disclosure agreements feature a number of key clauses and essential elements. From a legal perspective, employers should consider these clauses and elements as very critical elements of a confidentiality agreement between an employee and an employer. As promised, we have hammered on the importance of “Determining what Constitutes Confidential Information” as the first essential element that should feature in every non-disclosure agreement/confidentiality agreement.
Determining what Constitutes Confidential Information
The confidential information requiring protection must always be stated explicitly in every non-disclosure agreement. While the secrets are not actually disclosed, the subject matter of the disclosure is established through a list of categories and types of confidential information. It is also crucial to remember that the nature and value of confidential information vary from industry to industry.
Depending on industry and sector, an employer may have its confidential or proprietary information, such as innovative processes, business and customer financial information, programming code or proprietary software, and customer information and/or client lists. However, employers must understand that if the confidential information becomes available to the public through no one’s fault, if the information is generally known in the industry or is publicly available, if the receiving party discovered it or created independently of or before involving itself with the disclosing party, then such information is NOT protected.
Most importantly, while confidential/proprietary information goes hand in hand with “trade secrets, employers must be aware of the distinction between the definitions of both as provided under the law. This is because while some version of the UTSA (Uniform Trade Secrets Act) has been adopted by most states, the definition of trade secrets is provided under the DTSA (Federal Defend Trade Secrets Act). In our blog post titled “Statutory Definitions & Types of Info Considered Trade Secrets,” we mentioned that before implementing protective measures, an employer must identify the kinds of trade secrets warranting protection. We also identified several categories and types of trade secrets, such as (1) employee and/or customer (or potential customer) lists, (2) computer codes, recipes, formulae, and design blueprints, (3) business and marketing plans, (4) spreadsheets and databases that contain logistical statistics and data, (5) supply and customer service requirements or preferences, (6) profits, billing, pricing, and cost methodology and information, and (7) employee contracts or additional information on benefits, compensation, and wages.
Accordingly, in line with the definition provided by the DTSA, all types and forms of engineering, economic, technical, scientific, business, or financial information (such as codes, programs, procedures, processes, techniques, methods, prototypes, designs, formulas, program devices, compilations, plans, or patterns), whether or how memorialized, compiled, or stored (such as in the written form, photographically, graphically, electronically, or physically), and whether tangible or intangible constitute “trade secret.” However, the DTSA also provides a very STERN condition for a “trade secret” to meet this definition. Firstly, the DTSA requires that reasonable measures have been taken by the owner thereof to ensure the secrecy of such information. Secondly, the statute requires that the information derive potential or actual independent economic value from not being readily ascertainable through proper means and not being generally known to another individual who can obtain economic value from the use or disclosure of such information.
Accordingly, pursuant to Unif. Trade Secrets Act § 1(4), “trade secret” is defined similarly as information, including a process, technique, method, device, program, compilation, pattern, or formula that (1) derives potential or actual independent economic value from not being readily ascertainable through proper means by and not being generally known to another individual who can obtain economic value from the use or disclosure of such information (2) is the subject of reasonable efforts under the circumstances to ensure its secrecy is maintained.
From a legal point of view, we advise that employers should use a more expansive and comprehensive definition of confidential information than the one for trade secrets provided under the UTSA. For instance, a provision aimed at protecting confidential information but that may not reach the level of a trade secret (implying that it is not entitled to UTSA protection) may be included during the drafting process.
Stay on the lookout for Part III of the series, where we will hammer on “Determining the Obligations of the Receiving Party,” another critical step and element of every confidential agreement between an employee and an employer.
In the meantime, stay tuned for more legal guidance, training, and education in other series in progress. In the interim, if there are any questions or comments, please let us know at the Contact Us page!
Always rising above the bar,
Isaac T.,
Legal Writer, Author, & Publisher.