Trade Secrets

Confidential business information that gives a company competitive advantage — legally protected, and a common source of employment disputes when employees change jobs.

A trade secret is any business information that (1) has independent economic value because it's not generally known or easily ascertainable, and (2) is subject to reasonable efforts to maintain its secrecy. Trade secrets can include formulas and recipes (the canonical example is Coca-Cola's formula), software algorithms, customer lists and pricing data, manufacturing processes, business strategies, financial projections, and supplier relationships. Federal protection comes from the Defend Trade Secrets Act (2016), which allows companies to file federal civil lawsuits for misappropriation; all states have their own trade secret laws as well, most modeled on the Uniform Trade Secrets Act.

Trade secrets are most commonly implicated in employment contexts when an employee leaves for a competitor. The question that arises is: what did the employee take, remember, or use, and does it constitute a trade secret? Courts draw a distinction between trade secrets (protectable) and general skills, knowledge, and experience (not protectable — employees are free to take their expertise with them). A sales rep who memorizes a customer list isn't necessarily misappropriating a trade secret if that information is independently accessible; the same rep who downloads the company's CRM to a personal drive on her last day almost certainly is. The line between 'I learned this at my job' and 'I took this from my employer' is the central inquiry in most employment trade secret cases.

Employees are most at risk of inadvertent trade secret issues when: joining a new employer in the same industry immediately after leaving a role with access to sensitive competitive information; using prior employer's customer data to contact former accounts at the new job; retaining or copying documents, databases, or code on the way out; or being asked by a new employer to share specific competitive intelligence from the prior role. The safest practice is to leave cleanly: return all company property and access on your last day, delete or return any company data on personal devices, and be mindful about what knowledge you actively deploy in your first months at a new company versus what you bring as general expertise.

What Qualifies as a Trade Secret vs. General Knowledge

  • Trade secret (protectable): customer database with pricing, purchase history, and contact information maintained in a proprietary CRM.
  • General knowledge (not protectable): experience building relationships with customers in a particular industry, general understanding of customer needs and buying patterns.
  • Trade secret: specific manufacturing process or formula not publicly known.
  • General knowledge: skill in a particular manufacturing technique or engineering discipline.
  • Trade secret: proprietary source code or algorithm developed internally.
  • General knowledge: programming skills and software engineering expertise developed over a career.
  • Trade secret: financial projections, strategic plans, or M&A targets in a confidential internal document.
  • General knowledge: understanding of how companies in an industry evaluate strategic decisions.

Employee Obligations and Best Practices When Changing Jobs

Most employees who sign an NDA or IP agreement as part of employment are bound by confidentiality obligations that survive the end of their employment — meaning they can't disclose trade secrets to a new employer even after they leave. The most important practical steps when leaving a job are: don't take anything you wouldn't take if you knew IT was watching (because they often are); return all company equipment and delete company data from personal devices; don't use company email or systems to send files to yourself before your last day; and be thoughtful in the first 90 days at your new employer about the distinction between expertise you're bringing versus information that belongs to the prior employer. If your new employer explicitly asks for information about your prior employer's business — customer lists, pricing, source code, strategies — that's a red flag about the new employer's practices and potentially your own legal exposure.

Example

A senior engineer leaves a fintech company with access to a proprietary fraud detection algorithm. On her last day she downloads the algorithm's codebase to a personal laptop. Her former employer's IT team flags the download in their endpoint monitoring logs. The former employer files a lawsuit under the federal Defend Trade Secrets Act seeking an injunction to prevent her from working on fraud detection at her new company. The lawsuit is settled: she is required to submit her personal devices for forensic review, delete all downloaded files, and sit out of fraud detection work for 6 months. The entire situation would have been avoided by not taking the files.