Summary
Hosted by Chris Buntel, featuring Matthew Prewitt and Linda Jackson, Partners at ArentFox Schiff, this episode of the Reasonable Measures Podcast explores how companies can protect trade secrets throughout the employee lifecycle: onboarding, ongoing employment, and offboarding.
Linda and Matt explain that companies often focus too heavily on employees leaving for competitors, while overlooking risks that arise during recruiting and throughout employment. During interviews, candidates may inadvertently disclose a former employer’s confidential information, potentially exposing their new employer to trade secret litigation. Once employees are onboarded, companies must balance employee retention with appropriate data controls, access restrictions, and ongoing training to prevent confidential information from being disclosed or misused.
The conversation also explores the importance of well-defined offboarding procedures, including recovering company devices, revoking system access, reviewing unusual data transfers, and reminding departing employees of their continuing confidentiality obligations. The speakers emphasize that trade secret protection is not just about preventing information from leaving the organization. Companies must also demonstrate that they took reasonable measures to identify, protect, and control access to that information.
Finally, Linda and Matt discuss how artificial intelligence is creating both new risks and new opportunities for trade secret protection. While AI may enable competitors to replicate employees’ specialized knowledge, it may also help companies compartmentalize sensitive information and reduce reliance on individual knowledge holders.
The main takeaway is clear: effective trade secret protection requires a proactive, company-wide approach at every stage of employment. Organizations that combine thoughtful hiring practices, employee retention, ongoing training, technical safeguards, and disciplined offboarding processes are better positioned to protect valuable information and defend their trade secrets if a dispute arises.
Takeaways
1. Trade secret protection starts before an employee is hired. Companies should train recruiters and hiring managers to avoid soliciting confidential information from candidates about former employers and establish clear onboarding procedures to prevent trade secret risks.
2. Protect trade secrets throughout the employee lifecycle. Companies often focus on employees leaving for competitors, but risks arise during recruiting, throughout employment, and during offboarding. A proactive approach is essential at every stage.
3. Employee training and data controls are critical. Employees need to understand what qualifies as a trade secret, including business information such as customer lists, pricing strategies, and market research. Access restrictions, monitoring, and ongoing training help prevent accidental disclosures and misuse.
4. A consistent offboarding process reduces risk. Companies should recover devices, revoke system access, review unusual data transfers, and reinforce continuing confidentiality obligations. Carefully managed communication with a departing employee’s new employer may also help protect sensitive information when appropriate.
5. AI is creating new risks and opportunities for trade secret protection. While competitors may use AI to replicate employees’ specialized knowledge, companies can also explore AI to compartmentalize sensitive information and reduce reliance on individual employees. Proactive planning is essential to address these evolving risks.
Transcript
Chris (00:14)
Hi there. Did you know that there are three different phases to employment and each has different and special trade secret risks? I'm Chris Buntel, I'm one of the co-founders of Tangibly. It's great to be here with two partners from ArentFox Schiff. We have Linda and Matt, and I'd love to hear a quick introduction from you before we dive into this interesting topic. Linda.
Linda Jackson (00:43)
Thanks, Chris. Thanks for having us. Linda Jackson, I am a partner in our D.C. office. I co-lead the firm's national litigation practice and co-lead the trade secret practice with my colleague and friend, Matt Prewitt.
Chris (00:56)
Matt?
Matt Prewitt (00:59)
I am the aforementioned Matt Prewitt. I co-lead with Linda our trade secrets, non-competes, and employee mobility practice. I split my time between our Chicago office and New York office and cover the firm's national platform with a mix of litigation work, counseling and transactional work.
Chris (01:23)
Fantastic, it's great to have both of you here. When I think about employment, in my mind there's really three different phases. First is the onboarding, and you could even argue it includes recruiting, you know, everything leading up to employment. Then there's the middle part, which is being employed, which could last a long time potentially. And then finally is offboarding when you have an employee leave the organization typically to go to either another company, you know, might be a competitor, might be not, or start their own competing business. So, I'm really curious to get your perspectives, especially from your experience with clients. How concerned are clients about these three phases? Or, you know, are they concerned with all three, or two or one, or maybe they're not concerned about employees at all until it's too late. But you know, what's your typical experience with clients?
Linda Jackson (02:30)
Well, I'd say sometimes many of our clients don't think about it often enough, right? And it's not until there's an issue and part of what we try to do with our clients is get them prepared before there are issues and help them with auditing their different programs and systems from soup to nut cradle to grave, as one might say. So there's always room for improvement. but in my experience would say if I were to pick one of those three buckets, the one that's perhaps needs more tending than others is the middle bucket during employment. But each has its own issues.
Chris (03:12)
From my experience, a lot of clients worry about offboarding. If they're worried about any of them at all, it's really the offboarding where they're concerned that you know they're leaving my company to go to a competitor or leaving my company to start their own competing business. But I agree with you that you know people put a lot of attention, maybe all their attention, on that final step, but they're not doing things proactively either before employment or at the very beginning of employment to really lower their overall risk. And that that seems like a mistake.
Linda Jackson (03:53)
And you know, there are different risks, candidly, at different moments in time. So as an example, the onboarding risk maybe risk that the new employer may find themselves having some exposure or liability for the way they onboarded an individual and what they may have brought with them, whereas on the back end the risk is more often the risk that their own secret sauce, right, is going out the door for competitive use. And so, as you know, the risk mirror can run can run both ways. And if you're not careful on the intake, for instance, if you're bringing in a senior level person, bringing in a salesperson happens often in the sales category of onboarding, in the interview process itself, a company can find itself in trouble, right, in terms of what information it might be getting, whether intentionally or unintentionally, if someone brings with them files they shouldn't have and begins using them and they're in your system, you can find yourself to be the target of a trade secret misappropriation case as a co-defendant, or perhaps the primary defendant because of the pockets pretty quickly. And so very different types of risk at these different moments in time.
Chris (05:18)
And Matt, I'd love to hear your thoughts on the onboarding process. Yeah, Linda and I were just talking about how a lot of clients kind of downplay or maybe ignore the trade secret risks from hiring a great engineer, scientist, programmer from somewhere else and to bring them on board. Are there any kind of best practices or advice that you give your clients, especially around lowering onboarding risks?
Matt Prewitt (05:51)
It really varies depending on the sector, but this is an issue that I think many of our clients are well attuned to because they are concerned about the practical risk of the disruption that will happen to the successful onboarding of new talent if they receive that cease and desist letter and then have to hit the pause button on that process. And after that's happened two or hopefully only two or three times, sometimes it takes a fourth time for the lesson to sink in, they do realize that they need to be upfront and thoughtful about that process. One of the things that I've taken a page from in some of the financial services clients that we work with and in that industry is actually having a template or model for the onboarding process. And taking the client step by step through that process with an entire playbook. The point that we emphasize there is that the time to think about onboarding risk is during the interview process, not when the talent has arrived in the HR office, which now is often virtually, to sign documents and to complete their W-2 and their insurance forms. If you're thinking about onboarding risks then it's probably too late. Instead, we try to counsel our clients that whoever is the hiring manager or hiring executive needs to be thoughtful about what information they're receiving or requesting, how they're requesting that information, how it's coming across from one side to the other. And then what they're communicating internally.
Chris (07:40)
Yeah, it's a great point about interviewing because most people think about trade secrets regarding employment. Like once people show up to the office or work from home, suddenly the trade secret clock starts. But oftentimes in interviews, the candidate wants to be really impressive. And they might say, I worked on all these great things and I developed all these cool technologies. And they might inadvertently or you know by mistake reveal trade secrets even before receiving an offer or starting a job. So that that's a great point.
Linda Jackson (08:29)
Absolutely. And candidly, sometimes it works the other way too, right? Where the interviewers are trying to suss out, what have you done in this arena? And just, you know, how close to the cutting edge of the industry are you? So to your point, it can be an unintentional solicitation of information, but candidly, you know, there are litigations, of course, where a primary focus of litigation are the questions that were asked and whether the information solicited was intentionally solicited or not. It's become one of the hot zones in the life cycle of these cases for litigation. And so, you know another way in addition to what Matt was describing and I think this this has become fairly commonplace, but is to have representations that are signed representations in the onboarding documents that say, I'm not bringing anything, we don't want you to bring anything, you know, affirm that you're not going to use anything, all of that jazz, as that next phase. Once you've trained your interviewers, you've trained your recruiters, you know, you are going into those initial meetings, pure of heart and educated about the danger zones, then in that next step making sure you've got the proper certifications, which can carry you a long way if you find yourself as a co-defendant in an injunction hearing.
Chris (10:14)
And there is a balance there where, like as an employer or you know, soon to be employer, you want to hire great people. You want to be able to go out into the market and hire the best, most talented people you can, but you don't want to trip over the line and receive trade secrets that you don't want to be in possession of, so finding that balance is kind of tricky.
Linda Jackson (10:40)
Yeah. It's one thing to ask about one's approach, for instance, to their marketing and how they market or what their thoughts are maybe on industry trends for pricing and such. And it's a different story to be talking about specifically what your pricing arrangements are with certain customers. So it is a tough line, but with some thought and care, you can draw some pretty clear lines in those conversations.
Matt Prewitt (11:17)
The other piece to keep in mind with the onboarding is that that is how you train your employees on how to behave when they exit. So it really is an essential moment in developing a culture of compliance to model good behavior for when inevitably someone who's participating in that interview process will become a former employee at some point. So it's great hands-on practical experience that hopefully they will remember and take seriously when they exit themselves.
Chris (11:48)
Well and looking at the other end of the spectrum at the offboarding, like have you had clients send a polite letter to the new employer? Like if you have a key employee that you consider to be high risk because they knew a lot of trade secrets or they were exposed to a lot of secrets and they're going to a competitor or a potential competitor.
Linda Jackson (12:15)
Absolutely.
Chris (12:15)
Some people think it's way too aggressive to send a letter, but I've found that as long as it's written kind of positively and nicely to say, yeah, hey, I understand you're hiring Linda. She's great, but be aware that she was exposed to trade secrets and has an ongoing obligation to you know, my company. without being nasty or, you know, making it sound like a lawyer.
Linda Jackson (12:48)
Absolutely and not in every instance, but some in circumstances, I agree with you. I think that is a really good tool. The language and the tone also depends on circumstances and you want to be careful not to create some interference claim or defamation claim and all that jazz, right? So you need to be careful about the language, but I do think that's an effective mechanism putting the new employer on notice and then see how it goes from there. I think it's a great mechanism, not to be overused. and again, to your point, not to be too aggressive if circumstances don't warrant. But I think it's a great tool among others when people leave. Because at the end of the day, in my view, you've got two primary objectives. One is you want to protect the stuff. That's your first objective, is protect the stuff and keep it locked down and keep it from being competitively used by somebody else. And the second is being prepared in case you need to go fight about the issues. And a letter like that can help on both of those objectives.
Matt Prewitt (14:07)
You do have to be careful, as Linda noted, about the potential liability for tortuous interference or similar claims. And so one of the things that we often do is to bake into the employment agreement provisions that facilitate the sort of notice that we've been talking about. That includes the employee agreeing to give prior notice to the employer about where they're going and to have that continue not only with the initial exit, but for some period of time after that. To have the employee specifically consent to the employer communicating with the new employer about the confidentiality agreement and then imposing on the employee an affirmative obligation herself to disclose the confidentiality agreement to the new employer. The combination of those can create a very robust channel that is low risk for communication with the new employer.
Chris (15:05)
Yeah, those are great suggestions. And I a lot of times the employee might not comply. Like, you know, especially if they're leaving under less than friendly terms or there's a layoff or whatever. And you know, they might be in a not very cooperative frame of mind. But even in that case, you can say that they didn't go along with their contractual obligations. So it's already making them look like they're not living up to their end of the deal. So I think it can be very effective. Again, you have to be super careful on wording and use it very mindfully, like rarely, but in the right circumstance, I think it can have a lot of benefits.
Matt Prewitt (15:52)
Totally agree.
Chris (15:54)
Matt, I'm also curious, one of the reasons that trade secrets are exciting to me is it's very personal. Like there's usually one alleged bad actor, or maybe a small team that's doing something that perhaps they weren't supposed to do, versus an entire organization impersonally releasing a product. But given that it's personal, like how do you monitor for risks? Or what do you do in that big middle section of people are just doing their job, they show up every day. What can you do as an employer? What can your clients do to kind of watch out for trouble or to spot risks before they grow into real problems.
Matt Prewitt (16:44)
Well, if you're talking about HR risk, in other words, the risk that's created by the departing employee or the disloyal employee as a conduit for your trade secrets to exit your organization, then I mean that really comes down to the nuts and bolts of retaining people and keeping them happy. That is the first line of defense for trade secret protection. We are entering a brave new world where the potential to address that issue by relying upon AI agents to hold the secret sauce instead of the employees is becoming increasingly possible. So maybe we start thinking about giving token bonuses to AI agents to keep them happy.
Linda Jackson (17:29)
Ha ha ha.
Chris (17:34)
Linda, what do you think about how to protect the middle risk?
Linda Jackson (17:44)
I agree retention is best, but sometimes that's just not going to work for everybody. And so, you know, sometimes you're really just not going to know until right up to the end when your spidey senses go up that a one of your senior people is just acting a little bit differently and you see those kinds of warning signs. But I am a big fan of having consistent methodical structures in place that catch things as a matter of course. And so, for instance, you know, you can have your IT system set up so that it detects when unusually large or consistent movements of documents and data is occurring. And that can be a great first screen because often, even for the most senior folks, you know, information can start walking out the door months before they're prepared to disclose that they're setting up their own entity or they're moving to a different location. And sometimes it's because the person just doesn't think about it, doesn't know any better. Sometimes it's more nefarious, doesn't really matter at the outset. But that's a pretty benign and easy mechanism to put in place that can be an initial filter in addition to the other things that that Matt's talking about. I would also, and this is less about people leaving, but more about managing data in that middle period, is paying really close attention to a structure that prevents inadvertent disclosures and a structure that would say out loud to the world that we really don't care as much about this information as we're telling you in court now that we do, right? And so having the right NDAs in place from the outset with your employees. If you're in acquisition talks, making sure that you've got your NDAs with potential partners and other diligent entities really locked down. Your licensing agreements really locking down protections of the data, not having overly broad access to your data. All of those issues, if there's a foot fault or a weakness, can really, not only does it let the information out the door, which is what you're trying to stop in the first instance, right? But it can really undermine your ability to later assert trade secret status. so I like to remind folks and I think our group does a good job of reminding our clients and publishing on this point is make sure you've taken a good look inside on your hygiene, if you will, on these issues so that you are set up for either of those two situations.
Chris (20:36)
And how does training fit into this? It's not necessarily a lawyer issue, but yeah, are your clients providing training? Do they do annual recertification like a lot of the HR and securities compliances go? How effective is training at lowering your risk of these problems happening, especially if they're inadvertent disclosures?
Matt Prewitt (21:00)
There are really two pieces to the training element. One is that if you are making a trade secrets case as a trade secret owner, training is an important part of that narrative. I have put together with clients before training videos where one of our conscious elements in the designing of the video is to be able to play it to a jury so that we show the jury the company's commitment to protecting trade secrets and exactly what the employee saw when the employees, you know, being litigated against. So that is one very important piece potentially, depending on the organization and their level of risk. But training I think is very, very important. I think that's the cornerstone for addressing that middle ground issue that we were talking about earlier. It can't be only at the day you arrive and the day you leave.
Linda Jackson (21:57)
And I think one of the aspects of training that some of our clients and some of their folks in the field find most illuminating, if you will, is what is a trade secret, right? And in all seriousness, and because it's not just the widget, you know, the next version of the widget. It's not just whatever the formula is. It can be, and this is a lot of what I do in my sphere, it can be business information. And it can be compilations of business information. And one piece of data standing by itself may not rise to the level, but when you combine it with other strategies, market strategies, product development strategies, pricing strategies, procurement strategies, pipelines, all of that is very much trade secret information. And that's helpful to reinforce with folks out there on the ground, A, in terms of how they think about it, B, in terms of the steps they're taking to mark those documents, if the information resides in documents again, limiting access and different placing different protections on that information. So it is awfully hard from a business perspective sometimes to focus on training because it is hard to see the immediate return on that investment. but it is I think a very useful tool in the short term for a lot of long term gain.
Matt Prewitt (23:34)
I want to pick up on one point that that Linda hit on that I think is really worth emphasizing, which is that the trade secret is not that you may ultimately be fighting over in an employee departure situation, may not be what the management team might identify when you're sitting down to talk to them as the company's prime jewel. because I can't tell you the number of times where we have needed to use what you might call the second tier of trade secrets as a proxy for what you really care about. Because what you really care about may be really hard to prove. There may be instances where you don't even want the world to know what you really care about. And you don't want to put at risk even just talking about it in a courtroom. And so, as fate would have it, the data that you can prove the employee took with them is, you know, the second tier stuff. Good enough to get an injunction. And the only reason you have that second tier there is because you had a robust net and good systems and processes in place to begin with.
Chris (24:50)
Fantastic. And we're running a little tight on time, but I'd love to hear from both of you on, you know, for viewers watching this podcast now or in the future, what's the first thing they should do tomorrow morning to help out, especially around employees and the topics we've set. Maybe call you should be the first thing. What's the second thing they should do?
Linda Jackson (25:15)
So we haven't talked about when folks exit and I think I think nailing down your processes on exits is one of maybe the easier areas to tighten up, and focus on. And so if that were the first thing you were going to do, I'd say check your back-end processes. Make sure that the company has a checklist, HR has a checklist, right? And it includes, you know, going over whatever covenants they've got, including their NDAs, making sure your setting deadlines for quick recovery of devices, of information and executing on that and sending reminder letters and being diligent about pulling the thread and closing the door on any access and retention that that person may have had to sensitive business information. And that's another focal point for little hotspot in litigation. I was just reading an opposition to a preliminary injunction for a case out in California that I have nothing to do with, but it's a huge litigation. And I wanted to see how they are approaching it. And their first sentence was: their back-end exit process was a mess. They deserve this. And mess is their word, not mine. I'm like, well, it was certainly impactful, but the point was well taken, and it is a hot spot. And it's, I think, of all of what we've discussed today, it's the easiest to administratively lockdown with that IT component of double checking what's going out the door, and depending on how high level the person is or the information they have access to, doing a peremptory forensic examination of their devices and their systems.
Chris (27:18)
Fantastic. Matt?
Matt Prewitt (27:20)
So this may be a teaser for a separate session, but what I would say is that the first thing that our clients should be doing, or our future clients should be doing, is thinking about how AI is really transforming trade secret protection. We've been talking about employees as the pathway for trade secret exit. And AI is transforming that in both a good way and a bad way. The bad way is that if you have knowledge workers on your payroll who are generating work that goes out the door and embodies their creativity that you've trained and invested in, understand that there is probably a competitor out there who is currently training an AI agent to replicate your employees. We see this as a intentional, deliberate strategy that is being used. The places where I've encountered it most obviously are in the provision of analysis. So investment analysis, investment advice. The buzz out in the marketplace is that a lot of those research firms are going to be out of business in five years because every single report that they get is being used by their clients to train an AI agent. I think there's a little bit of hyperbole in that, but it's a real issue that we will be seeing across the industry. And it requires a different way of thinking about protecting against the employee risk. On the flip side, AI gives us the opportunity to compartmentalize trade secret knowledge in a way that we've never had before. And what do I mean by that? So the classic thing in the food and beverage industry is if you have the original recipe, you have half the ingredients on one piece of paper and you have half the ingredients on the other, and those two pieces of paper don't ever reside in the same place or with the same people. And that's an oversimplification of the original recipe trade secret protection, but you get the idea. AI gives us the opportunity to do that in a radically transformative way for trade secret protection, because we now have the ability to put within an AI agent pieces of how the company operates that become invisible. And that's going to happen anyway. It's happening anyway for reasons that have nothing to do with trade secret protection. But monitoring and exploiting that in a way to enhance your trade secret protection against employee departure risk, I think is going to transform what Linda and I and our colleagues do.
Chris (30:13)
Those are great ideas. And if there's easily one or two or three more podcasts and answers, so keep it coming. Well, thank you both. This has been a really good conversation and the time flew by. It's a great topic, and talk to you next time!
Linda Jackson (30:31)
Super fun. Thanks, Chris.
Matt Prewitt (30:33)
Thank you.