From Trade Secrets to Newsletters, What Do Confidentiality Agreements Really Cover?
A recent case filed in federal district court highlights a common issue employers face when enforcing their confidentiality and non-compete agreements against former employees. In its complaint, the employer claims that the employee agreed to return company documents if he quit or was fired. What constitutes confidential documents and information? Was the employee required to return only confidential and proprietary documents that contained the company's trade secrets, or was he required to return any document he received during his employment?
The case (Prudential Insurance Co. of America et al. v. Inlay, case number 10-4072, N.D. IA) was brought by Prudential Insurance Co. of America against one of its former insurance agents. Prudential claims that the agent breached his agreements with Prudential when he accepted a job at a competitor, used Prudential’s confidential information for his own benefit and for the benefit of one of Prudential’s competitors, improperly used Prudential’s trade secrets, and solicited Prudential’s clients.
In its complaint, Prudential claims that the agent agreed to return Prudential documents if he quit or was fired. Prudential claims that unless the court enjoins the agent’s conduct and directs that he return confidential documents and information he possesses, other agents will be encouraged to engage in the same improper conduct. What constitutes Prudential’s confidential documents and information the agent possesses? Was the agent required to return only confidential and proprietary documents that contained Prudential’ s trade secrets, or was he required to return any document that he received during his employment with Prudential?
Employers often answer this question differently in litigation. Some employers require only that confidential and proprietary information be returned, such as client lists, pricing lists, and marketing strategies. Other employers require that any tangible item the employee received during his or her employment be returned. Tangible items could include employee manuals, technical manuals, client service advisories, or even company newsletters. (I wouldn’t go so far as to say that tangible items should be defined so as to include a trophy the employee received while playing on the company’s softball team, but you get the point).
When it comes time to enforce an agreement, the employer has a much stronger case if the information that is required to be returned to the employer is thoroughly defined and described within the company’s confidentiality agreement. The employee is also more likely to comply with the requirement to return information if he or she understands exactly what information should be returned to the company. All too often in cases involving breach of confidentiality agreements, the former employees admit in their depositions that they didn’t realize that they needed to return certain information. It may also bolster an employer’s case against an employee for breach of a confidentiality agreement if it can present a letter given to the employee upon his termination that described the information that was required to be returned and provided the employee a deadline in which to return the information. A court may be more willing to enforce a confidentiality agreement, if the employer can show that the employee knew what information was required to be returned, but failed to do so.
Although there is no fool proof method for an employer to define "confidential information" in its confidentiality agreement, a more thorough definition may save the employer money and heartache. A more thorough definition sure beats litigating whether every single document the former employee had in his or her possession after termination was covered by the confidentiality agreement.