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How to Stop Departing Employees from Walking Off with the Company Jewels

11.14.2018

Problem: A key member of the design team for your start-up company's upcoming product launch has just quit in a huff over compensation. He (or she) threatens to go to your primary competitor and share everything they know about your new product, including the technology and the marketing strategy. This will have a devastating effect on your business because your new product was poised to be a technological breakthrough in its field and would put you on the map. If your competitor, who is well established and well financed, can quickly enter the market with a similar product, your business will likely go belly up. What can you do?

Action: If you have protected yourself in advance, you can likely stop your disgruntled former employee from using your company secrets against you. If you haven't, you may be in for a rude awakening.

There are several ways to protect company secrets from misuse by departing employees. First, you can require employees to sign confidentiality agreements, non-solicitation agreements, non-disclosure agreements, and non-competition agreements to prevent departing employees from unfairly competing against you with confidential business information they obtained as a result of their employment. These agreements have to be carefully prepared to be enforceable, but with proper advice, a business can give itself significant protection with these kinds of agreements.

Second, you need to protect your trade secrets. A trade secret is business or technical information that: a) derives independent commercial value from not being generally known or readily ascertainable through independent development or reverse engineering; and b) is the subject of reasonable efforts to maintain its secrecy. This means you can't leave the secret formula for your new product lying on your desk for the cleaning crew to copy at night. It also means you need to have established corporate policies to protect valuable information, and you must consistently enforce these policies. The best policy handbook in the world won't do you any good if you don't actually follow it.

Finally, you need to make sure that any employee who leaves no longer has access to company information and has not taken any company data with them when they left. The Carolina Panthers were in for a rude awakening when Steve Smith, a receiver for the Panthers, was cut from the team in 2014 and was heading to another team. NFL teams guard their playbooks like they are state secrets. The Panthers asked Smith to return his computer tablet that had all of the Panthers plays in it. But, the team had just converted to tablets from old fashion notebooks and they didn't ask Smith for his old notebook. So, he turned in his iPad to the Panthers and gave the old notebook with all the plays to his new team, the Baltimore Ravens!

Results: If you have taken appropriate steps to protect the company jewels on the front end, they will be much safer from theft or misuse by a departing employee. After all, even though the appropriate protections may take some time and money to put in place, it is much easier to deter a theft on the front end than it is to recapture the jewels after the thief has left the store with the diamond necklace and fenced it into the black market.

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