SI Review: January/February 2013

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Benefit of Counsel

Can You Keep a Secret?

The burgeoning concern over confidential information

By Luis I. Arroyo

Many businesses have increased their reliance on contingent workforces over the past decade. While their use provides flexibility to address business needs appropriately, contingents also present some challenges when it comes to safeguarding confidential information and trade secrets. Staffing providers should be prepared to help address these concerns.

What is confidential information? In short, “confidential information” is determined by the company. Typically, information the company deems as confidential will include its general business information; its customer lists (and especially customer purchasing history); pricing, discount or cost data; vendor lists (and especially history of transactions with vendors), etc. Confidentiality requirements are usually found in company policies and in agreements with employees, vendors and contingent workers. Some states limit how long information may be designated as “confidential.”

What are protectable trade secrets? Unlike “confidential information” that is usually protected pursuant to a policy or agreement, trade secrets are protected by law.

People often think of trade secrets as recipes, chemical formulas or software. Certainly, these items can constitute trade secrets; but the most often-asserted trade secrets are actually things like customer purchasing history, costs, margins, marketing plans, etc. And trade secrets only receive legal protection if a company takes reasonable steps to maintain the secrecy of the information. There is no bright-line rule to determine whether proper steps have been taken to maintain secrecy. Courts will look at the facts of each case to determine whether the measures used were reasonable.

While the list of possible security measures is limitless, some actions that are commonly cited as part of efforts to maintain secrecy include:

  • Execution of non-disclosure agreements or confidentiality agreements;
  • Establishing written confidentiality expectations regarding computer and electronics usage;
  • Outlining confidentiality or nondisclosure expectations in services agreements with vendors and workers;
  • Restricting access to information to select persons or groups on a need-to-know basis; and
  • Locked doors or file cabinets, key fob entry systems, security cameras and other physical security.

What the staffing provider can do. Providers of contingent labor are frequently asked to assist their client companies in protecting their confidential information and trade secrets in several ways. For example, clients may require that staffing firms have an agreement in place with their contingents requiring that workers maintain the confidentiality of the assigned company’s confidential or trade secret information. Companies may also require that assigned workers sign confidentiality agreements or may limit the access to certain information maintained by the client company.

Additionally, service agreements between the contingent workforce provider and the client may address the firm’s responsibilities to the client which may include assisting in any investigation of a possible breach or theft. The service agreement may also contain an indemnification provision with respect to any such investigation and requiring that the firm pay for legal costs associated with a successful claim against a contingent worker.

Providers of contingent labor need to understand the concerns of their clients. And, where appropriate, address those concerns through relevant agreements that make good business sense to the workforce provider. Having an employee sign a confidentiality agreement with a client is one thing, but indemnifying a client for the costs and fees of a breach of a confidentiality agreement may not be a risk worth taking.

Luis I. Arroyo is an attorney with the law firm of Michael Best & Freidrich LLP. He can be reached at liarroyo@michaelbest.com.

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