An employer can use a nondisclosure agreement to protect trade secrets or confidential information learned by an employee during its employment with the employer. Nondisclosure agreements are different from noncompetition agreements in that noncompetition agreements restrain trade and are enforceable only if “ancillary to an otherwise enforceable agreement” and if their terms are reasonable. Nondisclosure agreements, on the other hand, are not restraints on trade, as are noncompetition agreements (please see the accompanying article on noncompetition agreements). They do not necessarily restrict a former employee's ability to compete with the former employer. Nondisclosure covenants do not prohibit the former employee from competing with a former employer if the employee uses the general knowledge, skill, and experience acquired during the former employment. The nondisclosure agreement does prevent the use and disclosure of trade secrets and confidential information acquired by the former employee. Nondisclosure agreements are not restraints on trade and do not have to meet the same reasonableness requirements regarding time, geography, and scope-of-activity limitations that are imposed on noncompetition agreements.
Texas cases state that the employment relationship creates certain duties on the part of the employee, even in the absence of a written employment contract. One of those forbids an employee from disclosing confidential or proprietary information acquired during the relationship in a manner that harms the employer. This obligation survives termination of employment. Even thought these principles do not prevent the former employee from using the general knowledge, skill, and experience acquired during employment, they do prevent the use of confidential information or trade secrets acquired during the course of employment.
Obviously, the critical element is determining what constitutes confidential information and trade secrets. Texas courts have held that compilations of information which have a substantial element of secrecy and provide the employer with an opportunity for advantage over competitors constitute trade secrets and confidential information, such as pricing information, customer lists, client information, customer preferences, buyer contacts, and market strategies.
Further, the employer can prevent, not only the disclosure, but the use of confidential information belonging to the former employer. For example, a former employee can solicit customers of the former employer, absent an enforceable noncompetition agreement, so long as the employee does not use confidential information. If the identity of the customer can be obtained from a phone book or from a comparable avenue of public access, then the former employee can solicit the customer.
It is a different situation when the customer's identity is combined with other data generated by the employer or during the employment. In that case, the resulting compilation, if it is not publically available, carries the required indicia of confidentiality which can be protected. For example, while a customer list simply containing the names and addresses of a customer may not be a "trade secret" it may be made so if additional information is incorporated, particularly if at "considerable expense". In summary, a former employer will not be able to prevent the solicitation of its customers whose identity is publically available, but it can prevent the use of confidential information, such as its customer list, in soliciting those customers.
For additional information, see the accompanying article: Texas Noncompetition Agreements.
This informational memorandum from the law offices of Thomas D. Solomon, P.C. is provided as a courtesy to our friends and clients to provide them with items of interest in the area of covenants not to compete. It is not and is not intended to be an exhaustive treatment of its subject matter, but rather an overview of some of the pertinent elements of such matter. It is not intended to be legal advice or a legal opinion and should not be relied on in making legal or business decisions. If you have any questions, please call us.
