Implementing a Trade Secrets Protection Program in Colorado by Michael R. Greco, Partner,
Fisher & Phillips
Protecting trade secrets is a compelling concern for any company. It is even more important for companies with employees in Colorado. Why? The answer is simple. Colorado has an outdated non-compete statute that unnecessarily elevates the importance of trade secrets for employers who seek to protect themselves from unfair competition.
Colorado’s Non-Compete Statute
Colorado companies cannot require all employees to sign post-employment restrictive covenants such as non-compete or non-solicit agreements. This is because Colorado has a statute that limits the circumstances under which a company may require an employee to sign such an agreement. The statute provides that all non-competition and non-solicitation covenants are presumed to be void in Colorado unless they fall into one of four categories:
- a contract made in connection with the sale of a business;
- a contract that recovers an employee's training or education costs;
- a contract signed by "executive and management personnel" or "officers and employees who constitute professional staff to executive and management personnel;" or
- a contract necessary to protect trade secrets.
This means that unless a company is asking its executives or management personnel (or the executive’s professional staff) to sign a restrictive covenant, it is going to come down to whether the contract is needed to protect the company’s trade secrets. The implications of this are significant.
Many companies need to protect more than just their trade secrets. For example, notably absent from the list are employees involved in sales and customer relations. Many companies are at risk of unfair competition by former employees who seek to exploit customer relationships (i.e., goodwill) acquired during the employee’s employment. If you hire an employee and pay him or her to establish and cultivate relationships with your clients, you may have trouble enforcing a customer non-solicitation agreement unless you can demonstrate it is necessary to protect a trade secret. Similarly, if you hire an employee with no industry experience and invest in his or her growth and development in your industry, there may be little you can do to prevent your competitors from reaping the rewards of your investment; unless you can prove that the employee’s departure also implicates trade secrets that qualify for protection under Colorado law.
Starting to spot a theme here? The bottom line is that most Colorado companies will have difficulty protecting themselves from unfair competition at the hands of their sales team or other rank and file employees unless their trade secret house is in order.
Implementing a Trade Secrets Protection Program
Given the heightened importance of trade secrets in Colorado, how does a company go about ensuring that its confidential business information can qualify as trade secrets? Three steps: (1) Identify your trade secrets; (2) implement appropriate policies and procedures; and (3) require appropriate parties to sign confidentiality agreements.
Step #1: Identify your trade secrets. It sounds simple enough, right? Wrong. A good place to start is the Colorado Uniform Trade Secrets Act (“CUSTA”). Simply put, the CUTSA defines a trade secret to be information that is both secret and valuable. The statute provides examples of information that may qualify for trade secret protection, such as scientific or technical information, client lists, processes, improvements, or financial information, but it also makes clear that trade secret protection is not automatic. To be a trade secret, the owner must take active steps to keep the information secret. So the first step in protecting your secrets is to identify the information you want to keep secret.
Step #2: Implementing Appropriate Policies and Procedures. Now that you know what you want to keep secret, it is time to think about how you will do so. Do you restrict access to your trade secrets on a need-to-know basis? Do you label your trade secrets “confidential and proprietary”? Do you do it electronically and when printed out? Do you have written policies and procedures addressing the use and handling of trade secrets that are signed annually by all employees? Do you require your employees to use “smart” passwords that are updated regularly? Do you utilize electronic controls that block employees from uploading trade secrets from your computers to the cloud or a portable storage device? Do you encrypt your trade secrets when transmitting them electronically? Do you train your employees about how to handle your trade secrets? Do you immediately disable remote access when someone’s employment with your company ends? Do you take steps to ensure departing employees return all of your trade secrets? Do you remind departing employees of their legal obligations to maintain confidentiality of your trade secrets even after they leave you? These are just a few of the measures you might employ to bolster the odds of successfully protecting your trade secrets both in and out of the courtroom.
Step #3: Require Confidentiality Agreements From Everyone Who Has Access to Your Trade Secrets. Requiring employees to sign confidentiality agreements is a step commonly taken by many businesses, but do you require everyone with access to your trade secrets to execute confidentiality agreements? For instance, do you share any of your trade secret information with clients during the sales process? Do you allow visitors to access areas of your worksite where trade secrets may readily be observed (e.g., a factory floor)? If it is necessary to allow someone to have access to your trade secrets, require them to commit in writing that they will refrain from using or disclosing the information except as necessary for the limited purpose described in the agreement.
In sum, like all businesses, Colorado companies have a keen interest in protecting the non-public business information that gives them an advantage in the marketplace. But if you go the extra mile by carefully identifying your secrets and implementing a plan of protection, you may establish trade secret status for your information, and gain the added benefit of being able to use non-solicitation or non-compete agreements to contractually prevent unfair competition at the hands of a broader range of departing employees.
Michael R. Greco is a partner in the Denver office of Fisher & Phillips, a national labor and employment law firm. Mr. Greco is also a member of his firm’s Employee Defection & Trade Secrets Practice Group. He has handled hundreds of trade secret and non-compete matters in more than 35 different state and federal courts across the country. He may be contacted at 303-218-3655 or firstname.lastname@example.org.