As a business owner, you probably have methods or knowledge that are valuable to your business which you wish to keep secret to retain a competitive edge. This confidential commercial information is known as a trade secret.

This article will set out four ways you can protect your trade secrets in an employment context.

What is a Trade Secret?

Trade secrets include things like:

  • manufacturing methods;
  • product formulas; and
  • business strategies.

For example, Coca-Cola protects its soft drink recipes as trade secrets.

Unlike other areas of intellectual property (IP) law, trade secrets can protect your ideas and information. There is no time limit on this protection so it will last as long as you maintain privacy. 

Restraint of Trade Clauses

A restraint of trade clause can be used to protect a trade secret.  A restraint of trade clause is a contractual clause in an employment or service agreement. It restricts your former employees or contractors from engaging in certain conduct for a period after their employment comes to an end.  

An example of this is a clause preventing the former employee from using confidential information about clients gained during their employment to compete with you and your business.

In order for a court to uphold these clauses, you will need to show that the clause is:

  • reasonable; and
  • needed to protect valid commercial interests, rather than simply preventing competition.

Essentially, you should not make the clause any more restrictive than necessary to protect your business. For example, it would likely be unreasonable to restrict a former employee from working for a competitor after their employment ended if that employee was not party to any confidential information or responsible for customer relationships. 

Non-Disclosure Agreements

Your employees should sign a non-disclosure agreement (NDA) before you share any confidential information with them. An NDA is a contractual promise that your employees will keep confidential information secret, even after their employment comes to an end. You can define ‘confidential information‘ as specifically or broadly as you like.

An NDA acts as a deterrent for divulging business secrets. If an employee breaches an NDA even after they have left your workplace, you have a contractual right to take legal action against them. 

Tip: Ensure the NDA includes the consequences for a breach of the agreement, such as paying damages.

 

‘Need-to-Know’ Policy

It is a good idea to ensure that employees hold knowledge of trade secrets only if it is essential to them doing their job.  

For example, an administrative assistant at KFC does not need to know KFC’s secret recipe for fried chicken. Restricting availability to knowledge can go a long way in protecting your trade secrets. Further, ensure your secret information is secured in a manner and place where access is not available to anyone and everyone.

Breach of Confidence

If your employee does share your confidential information, you may take legal action against them for a breach of confidence. To establish this claim, you will have to prove:

  1. the information is confidential (i.e. it is secret information not known to the public);
  2. it was communicated to the employee based on a confidential obligation (i.e. a reasonable person would have understood the information shared to be confidential); and
  3. the disclosure of the secret caused you detriment (e.g. commercial damage).

If you establish a breach of confidence action, you may be able to get remedies such as:

  • damages;
  • an account of profits (where the offending employee gives you the profits made from the breach); or
  • an injunction (where the court orders the employee to do something or stops them from doing something).

Note: In order for a court to award you remedies for an unwanted disclosure of your trade secret, you will have to show that you have taken reasonable steps to protect it.

 

Key Takeaways

Trade secrets can be an effective way of protecting your commercial information, methods and strategies. Protect your trade secrets through well-drafted employee agreements, NDAs, and restricting access to confidential information. If your employees reveal your trade secrets, you may take action for a breach of confidence or contract.

If you have any questions or need assistance protecting your trade secrets in the workplace, get in touch with LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.

Charlotte Hale
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