Contract Essentials: Advising on Non-Competes,

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NDAs, and Inevitable Disclosure

Contract Essentials:
Advising on
Non-Competes,
NDAs, and
Inevitable
Disclosure

Written by

Steven. R. Sedberry

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Table of Contents
///

The Problems with Non-Compete Agreements & Reframing the Discussion 5

When a Key Employee Signs with a Competitor — An Example 9
The Inevitable Disclosure Doctrine 13
Developing Your Asset Protection Strategy — A Nine-Step Process 16
About the Author 20
Conclusion 20

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Introduction
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The reports of my death

are greatly exaggerated.
QUOTE MISTAKENLY ATTRIBUTED TO MARK TWAIN

How Did Non-Competes Become So Chic?

Putting Lipstick on the Pig

Let’s get cynical for a minute. Corporate loyalty

to employees died in the 1980’s. The faltering
economy perpetuated this treatment. Slogans
like “People First” and renaming “Personnel” to
“Human Resources” couldn’t disguise the fact that
jobs were rapidly moving offshore. Many new
terms were introduced into the lexicon: “corporate Slowly, the economy improved. But the damage
raiders”, “leveraged buyouts”, “restructuring”, and had been done. Realizing that no one had a job for
“downsizing”. Employees became expendable. life anymore, the workforce began job-hopping,
Employees were helpless. They accepted the gold laddering up to more money and position. Who
watch, retired early, and moved on with their lives. could blame them?

The Non-Compete is Born

The non-competition agreement, or “non-compete” quickly followed. It all started with a series of corporate
scandals in which high-profile executive superstars jumped ship for a competitor. They took secrets with
them. Companies began to require executives to sign non-competes, non-disclosure agreements, or both.
And eventually, they required everyone to sign them, almost to the point of absurdity. Can you require a
current employee to sign these? Many states adopted the rule that continuing employment in an “at-will”
situation constituted adequate consideration to bind these employees.

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INTRODUCTION
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Are Rumors of the “We’re From the What Goes

Non-Compete’s Death Government and We’re Around,
Exaggerated? Here to Help.” Comes Around.

Certain states such as After years of controversy and I would argue corporate
California and Minnesota several administrations, The America brought this upon
have statutorily banned them Federal Trade Commission itself. It didn’t want to get left
for years. Other states have (“FTC”) entered the fray and behind in the rush to non-
outlawed noncompetes with adopted a rule, effective competes. Like lemmings to
employees making less than September 4, 2024 which the sea, they jumped off the
a certain amount. But, if they seems to have put a stake cliff because everyone else
are reasonable in scope and in the heart of the non- was doing it. However, with
duration, many states have compete. (16 CFR 910-912; non-competes, by the time the
tolerated them. Litigation for more information, visit FTC rule was enacted, it had
became largely about their FTC Rule). You may think gotten to a point of absurdity.
reasonableness and even if of the FTC as protecting Employers insisted that fast-
they were reasonable, many consumers from fraud and food janitorial workers sign
judges found reasons to not other spurious business non-competes. Companies
enforce them. After all, who practices; it also enforces fired people and demanded
wants to be responsible for competition laws. This means that they adhere to the terms
preventing someone from it acts against companies of the noncompete. That
earning a living? doing anticompetitive things. is anticompetitive. Anyone
If you knew nothing about would say “enough is enough.”
the subject, other than the And that’s exactly what the
meaning of the words, non- FTC did.
compete and anticompetition,
you would probably wonder Does this mean that
why it took the FTC so long to companies must accept the
pass this rule. fact that their star salespeople
might get poached by the
highest bidder?

No.

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SECTION
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The Problems with
Non-Compete Agreements and
Reframing the Discussion
Many view non-competes as punitive, unfairly limiting a
worker’s freedom and ability to earn a living.

Enforcing a company’s rights under a non-

compete is often the result of fear and anger
surrounding an employee’s unexpected
departure. Your clients’ real concern is losing
their critical business secrets to competitors. The
issue is not controlling former employees but
protecting company interests and proprietary
information. Instead of focusing on the chaos
and confusion surrounding non-competes, let’s
consider the other tool that is rarely litigated:
the non-disclosure agreement or “NDA”. This tool
can help you reframe the discussion. However, if
you don’t take reasonable steps to protect your
confidential information, a court will likely find it
isn’t valuable confidential information at all. If it
were, you would have protected it.

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SECTION 1: THE PROBLEMS WITH NON-COMPETE AGREEMENTS

AND REFRAMING THE DISCUSSION
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Protecting Trade Secrets and Confidential is Procompetitive

There are certainly vindictive managers who will do anything to stop

a departing employee from joining a competitor. Like scorned lovers,
they exclaim, “You can’t do this to me. You’ll be sorry.” They angrily
bring in the lawyers. And it costs everyone a lot of money. But there
is more at play here. Look beyond the non-compete agreement in
isolation. While a non-compete may have served a useful purpose
and may even have had a place in your strategic toolbox, it is not, nor
has it ever been, a panacea.

The truth is that it isn’t about being scorned. It’s about protecting
one’s assets. Assets, including intangible assets, are fifty percent of
any balance sheet. Colonel Sanders knew this. Coca Cola and Pepsi
know it. And Bill Gates understands it. Each has precious intangible
assets that they vigorously protect. If your lover loses interest or
finds a better option, there isn’t much you can do about it. In America
we can freely associate with whomever we want. If they leave you,
perhaps you’ll be better in the long run. Forcing someone to stay
with you personally likely violates numerous laws. But what if, as
they are leaving, they drain the bank accounts, take the car, and your
adorable, adopted mutt “Dinky” with them. Preventing them from
stealing your stuff is an entirely different analysis. In an emotional
response, your clients overlook the fact that non-competes are
anticompetitive. And we overlooked the real issue: protecting
trade secrets and confidential information. The non-compete is
therefore, and always has been, a red herring. The new FTC rule only
confirmed it. Preventing former employees from competing with
you won’t solve the problem. Worry less about departing employees.
Worry more about defining your most valuable company assets
and developing strategies to protect them. They ultimately make
your business successful and competitive. This is father of modern
economics, Adam Smith’s, “invisible hand” of competition at work.

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SECTION 1: THE PROBLEMS WITH NON-COMPETE AGREEMENTS

AND REFRAMING THE DISCUSSION
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A Suggested Legal and Business

Process Framework
Protecting Intangible Assets. Tailoring Your Approach.
Protecting tangible assets is fairly simple. Locks The process requires understanding the nature
and security cameras are effective. You don’t of your intangible assets and taking reasonable
need a lawyer; a security guard will do the trick. steps to protect them. If you don’t understand
Protecting something you can’t touch is more which information is so important that the loss
challenging. Intangible assets, such as trade of it could jeopardize your clients’ future, then
secrets and confidential information require a you can’t expect employees and even former
more holistic approach. As the legal advisor, your employees to treat it appropriately. Adopt a
approach should combine your knowledge of tailored approach, customized for your business.
your client’s rights under the law, your business If you use the same “one size fits all” approach
process knowledge, and a concrete plan of action. that many used with non-competes, you will have
Most important is defining and distinguishing the same result. The agreements will be blue-
between the valuable intangible assets of penciled or thrown out by the courts.
confidential information and trade secrets.

The law has provided options for protecting

copyrighted, patented and trademarked On Keeping Secrets
assets. However, when it comes to protecting
Let me propose another legal tool that may help
confidential information and trade secrets you
you serve your clients: the doctrine of inevitable
will need to be more creative. As an in-house
disclosure. With this tool in hand, well-informed
lawyer, you are uniquely positioned to guide
counsel can add value, protect clients’ interests,
your client to a comprehensive intangible asset
and do the right thing all at the same time. In
protection process.
this guide, we’ll discuss inevitable disclosure and
how tools like non-disclosure agreements (NDAs)
can help you protect your clients. Then using the
nine-step process in this guide, you will be able to
develop a strategic plan to define, manage, and
protect your client’s confidential information.

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SECTION 1: THE PROBLEMS WITH NON-COMPETE AGREEMENTS

AND REFRAMING THE DISCUSSION
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Begin by Asking the Right Questions

Your first question should always be, “What in our business are we
trying to protect? The second question is, “How do we protect it?”

As with any legal issue, the answer to these two questions depends
on a myriad of factors and considerations. What kind of business
are you in? What gives your business its value? Capitalism is based
on competition. Adam Smith called it “the invisible hand.” We
innovate, both through products and business methods that give us a
competitive advantage.

If Everything is Confidential, “I Know It When I See It,” Take Your Finger Off
Then Nothing Is. Isn’t Good Enough. of the NDA Trigger.

Innovation enhances In Jacobellis v. Ohio., Justice There’s a great line in the Clint
competition. Statutes and Potter Stewart famously Eastwood classic, Dirty Harry.
regulations intellectual defined obscenity: “I know It goes something like this: “I
property; patents, trademarks it when I see it.” It was kind know what you’re thinking .
and copyrights. Further, of a pass. And in the case of . .” Detective Harry Callahan
every jurisdiction affords confidential information and points his monstrous .357
protection to trade secrets trade secrets, you’ll have to do Magnum Smith and Wesson
and confidential information. better than Stewart. There is pistol at the prone defendant,
You can win cases involving no way around an exhaustive who is reaching for a shotgun.
misappropriation of inventory, collected in
confidential information and cooperation with your clients. I know what you’re thinking.
trade secrets. This assumes, of You must know precisely what “Let’s make everyone sign
course, that the information is you need to protect, to decide NDAs.”
confidential, and the plaintiff how to protect it.
has sufficient evidence to Put that NDA back in your
establish misappropriation. holster. As with non-competes,
the use of an NDA requires
surgical precision, not a
broadaxe. If we make the
same mistake with NDAs that
we made with non-competes,
we risk the same fate. In
other words, if everything is
confidential, then nothing
is confidential.

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SECTION
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When a Key Employee
Signs with a Competitor —
An Example

Sam the Salesman.

“You’ve got to be kidding me,” Sam said during a tense meeting with human
resources. Sam was our star salesperson and coworker of mine at a large apparel
company, specializing in leisure wear.

“Everyone knows these aren’t worth the paper “You guys don’t enforce these. Everyone knows it.”
they’re written on,” he continued. Sam had
given the company notice of his resignation There was a pregnant pause. We all looked at each
and intention to work for a competitor. The HR other. We’d hired Sam straight out of college and
manager, Liz, had come to the meeting prepared. taught him everything he knew about selling. He’d
Following competitors poaching some key team risen through the ranks and was acknowledged
members about three years prior, the company as one of the best. And with the new policies we’d
began requiring all senior executives to sign instituted, we thought we had secured our key
non-compete agreements. Liz had produced and employees.
handed Sam the document he had clearly signed. Then, this happened.
Sam’s response, however, caught everyone
by surprise. What if we had stepped back for a minute
when we onboarded Sam and considered the
Gulp. bigger picture?

The Bigger Picture: Protecting Company Interests

Why do companies have employees sign non-competes? At its core, the true purpose of a non-compete
is to protect the company’s intellectual property. Losing the greatest salesperson in the world won’t make
or break a company. The company’s goods and services are what create customer loyalty. Companies like
Apple, Amazon, and Microsoft have all proven how brands can survive and thrive through the departure
of a key figure. Beyond the talents of certain individuals, consider that your company has other critical
assets and interests to protect. These assets might include business information, processes, trade secrets,
formulae, and other intellectual real estate.

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SECTION 2: WHEN A KEY EMPLOYEE SIGNS WITH A COMPETITOR —

AN EXAMPLE
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How Do Court’s View Protecting

Intellectual Property When
Compared with Non-Competes?

Pigs Get Fed; Hogs Get Slaughtered.

I suspect we are now paying the price for our

collective non-compete gluttony, treating all our
Sams the same. Judges and legislatures view non-
competes in terms of people. The non-compete
attempts to block a worker from taking a job
Looking Past a Single Document in the same field, and the judicial system has
Imagine however what a punitive response become extremely reluctant to keep people from
against a “Sam” would look like. Costly legal working. And as its name implies, a non-compete
battles filled with anger and stress with no is, by its nature, anticompetitive. There’s no way
guarantee of achieving the desired outcome. around it. And as I mentioned earlier how non-
Even if you win in court, you’ve still lost your competes have survived regulatory scrutiny for
salesperson. I hope your stomach is churning as decades, when the FTC and DOJ prosecuted cases
much as mine is just imagining this scenario. The involving equally anticompetitive behavior, is an
point is that this is a lose/lose for everyone. interesting question.

But what if we could take a step back in time? However, rights in intellectual property are a
Instead of just slapping Sam and every employee different matter. Generally, courts and legislatures
with a non-compete, what if we had given have supported the idea that legitimate
strategic thought to the secrets we needed confidential information is protectable, if you
to protect? We designed and implemented a take the proper steps to secure it. However, if
business process for the purpose of protecting you treat confidential information as if it has no
that hard-earned and valuable confidential value, courts will likely do the same. Unlike the
information that we will entrust to Sam? That non-compete agreement, the NDA focuses on
process included not only today’s information, but the question of intellectual property, forbidding
also the confidential information we will share employees from disclosing trade secrets and
with Sam as he advances in his career with us. As confidential information.
with any contract, we amend, restate, revise, and In this light, NDAs can help reframe the
manage the parties expectations regarding rights conversation; however, we must also understand
and obligations as the relationship evolves. This how to think about and treat trade secrets and
not a “once and done” thing. confidential information for NDAs to be effective.

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SECTION 2: WHEN A KEY EMPLOYEE SIGNS WITH A COMPETITOR —

AN EXAMPLE
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What Makes a Trade Secret a Secret, and Confidential

Information, Confidential?
These assets are defined by their utility. Simply calling something a secret does
not automatically make it so. Something becomes secret when the holder of that
secret, recognizing its value takes steps to protect it. For our purposes, we will use
the terms “trade secrets” and “confidential information” interchangeably. Consider
this as a working definition: “Information that is critical to a company’s success,
either through its products, services, or business model; that the company, in
recognizing its value, has taken meaningful steps to protect from its loss.

Consider the following questions you might ask employees entrusted with this property
about information worthy of protection: access it and/or return it?

➜ Is access to the information limited? ➜ Are employees trained in the proper use and
If so, to whom? preservation of the company’s confidential
information? Do we keep a record of these
➜ Is the normal practice to clearly identify
trainings?
the information as “Confidential.” Or, do we
rely solely on the confidentiality footer that ➜ Do we periodically take an inventory of
virtually every company and everyone uses? which information we deem as crucial to the
company’s success and purposefully protect
➜ The next time you are in meeting and
it?
the presenter is using PowerPoint, make
note of whether it is marked “Confidential ➜ Do we take appropriate steps when
Information”. How could any plaintiff claim onboarding and offloading employees who
trade secret status of this with a straight face? have had access to this information? Do we
Other markings could include “Proprietary”, keep records of that?
“Company Property”, “Internal Use Only”, and
“Do Not Distribute Outside the Company”. ➜ Are drafts of confidential information simply
discarded? Or do you shred the documents
➜ Is access to the information on a “need to and place them in locked receptacles
know” basis? maintained by vetted vendors?

➜ Is there a log of the times and dates when Or do we simply make everyone at the
company, including the custodian, sign the same
confidentiality and non-disclosure agreement
and assume our work is done? Covering all the
firm’s information with a single document treats
everything as equally valuable.

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SECTION 2: WHEN A KEY EMPLOYEE SIGNS WITH A COMPETITOR —

AN EXAMPLE
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How do you treat your putative confidential

information? If you don’t treat the information
as secret, you cannot expect your employees
to treat it as secret. And you can’t rely on the
“everything is confidential” position. You have
IF THE to demonstrate a comprehensive approach to
INFORMATION protecting your secrets.
WAS SO You may remember the story of Joya Williams,
SECRET, the administrative assistant at Coca Cola who
WHY DIDN’T was sentenced to eight years in prison for a
YOU TREAT failed conspiracy to sell Coke’s trade secrets to
IT LIKE A Pepsi. Coke took clear steps to protect a multi-
SECRET? generational trade secret, and the courts took this
breach seriously. They did not protect their price
lists, or their distribution methods. They protected
the syrup recipe, Coke’s most valuable asset. The
recipe has always been secured in a massive safe
in the basement of the headquarters building,
behind a steel wall with security cameras,
laser sensors, and all of the rest of the security
trappings; reminiscent of something from Fort
Knox or a James Bond movie.( The Vault).

Let’s dig deeper in the next section.

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SECTION
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The Inevitable
Disclosure Doctrine
If we take steps to secure specific trade
secrets and we make strategic use of our
non-disclosure agreement to cover critical
information, we have tools that can help us
if key talent attempts to leave our company
for a competitor. The doctrine of inevitable
disclosure is worth considering as a
component of your intangible asset strategy.

Assume that you have taken the appropriate steps to secure your information.
You have clearly identified, just as Coke did, exactly what is and isn’t confidential
information. You design specifically tailored NDAs for key employees who have
access to confidential information. You secure your information, both tangible and
electronic. You keep track of who accesses it and for how long, and you prohibit
copying it. You don’t allow employees to take it outside the company premises.
Essentially, you treat certain information as if it were valuable and proprietary.
What effect would these actions have that a simple NDA would not?

If an employee with access to that information attempted to move to a

competitor, it may just be that their disclosure of your secrets would be
unmistakable, unavoidable, and inevitable. And if the disclosure is inevitable, it
may very well be that they should not be allowed to join the competitor. This is
the doctrine of inevitable disclosure. PepsiCo. v. Redmond 54 F. 3d 1262 (1995),
is the seminal case in which the U.S. Court of Appeals for the Seventh Circuit
enjoined a PepsiCo executive from working for a competitor because it was
clear to the court that the disclosure of Pepsi’s trade secrets to the competitor
was inevitable. This was because the position Redmond had accepted with the
competitor made it, in the court’s eyes, inevitable that he would disclose PepsiCo
trade secrets.

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S E C T I O N 2 : T H E I N E V I TA B L E D I S C LO S U R E D O C T R I N E
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Example: Protecting Information in the Case of Sam

How We Might Have Handled Sam Differently.

Limiting Access to Confidential Information and Keeping Trade Secrets a Secret

Recall that Sam was our star salesman. The rest of the story is that we had developed a new product line
of yoga pants that employed a moisture wicking fabric never commercially used before. We decided, like
Coke, to keep this formula a trade secret. We identified key potential customers and engaged a high-
priced marketing and consulting firm to develop a database with key contact information, including non-
publicly available phone numbers and email addresses. Only Sam and his boss, the company CEO, had
access to this information.

Surgical Use of NDAs.

Sam was a part of a small team we

assembled to travel to Pakistan. We
planned to select a fabric vendor that we
believed was trustworthy and had the
ability to manufacture the fabric. We bound
that manufacturer to confidentiality, non-
disclosure, and exclusivity agreements
covering the fabric construction
specifications. We had prototype
garments specially developed for trials,
and participants signed NDAs covering
information disclosed during the trial and
the trial results. To be clear, we did not
require other vendors for our “mainstream”
commercially available products to sign
NDAs. We did not give them access to
confidential information or trade secrets.

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S E C T I O N 2 : T H E I N E V I TA B L E D I S C LO S U R E D O C T R I N E
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Regardless of the Give Me Good Facts or

Enforceability of Sam’s Give Me Good Law.
Noncompete, His NDA Would
Most Likely Be Found to To be clear, an argument
be Enforceable. using the law of inevitable
disclosure does not guarantee
Now back to that meeting a legal victory. Some courts
with Sam. Perhaps his non- recognize it; others do
compete is unenforceable. not. However, a company
Training and Education. However, the specifically- can demonstrate that it’s
tailored confidentiality and protecting its legitimate
Our core team for this
non-disclosure agreements interests. It can demonstrate
product received special
connected to Project Wet it’s not being arbitrary and
confidentiality training, and
given to specific individuals vindictive. It is not trying to
the materials related to
and covering specific stop a former employee from
the product were marked
information likely are doing honest work. Instead,
“Confidential and Proprietary.”
enforceable. the company is seeking to
We even assigned the project
protect valuable assets. These
the code name “Project Do you see the difference?
are intangible assets, by the
Wet” and set up a limited-
Any competitor who attempts way. They are the hardest
access shared drive to store
to hire Sam to get a free ride kind to protect. If you follow
all information related to
off our investment does so at the following steps, you will
the project. When we began
their own peril. Sam’s at risk have a much greater chance
our marketing efforts, we
as well because it would be of prevailing in litigation. The
numbered all materials
virtually impossible for him law is what it is. But you can
for distribution to a select
to work for someone else control the facts. As a trial
group of customers. These
on a similar project and not lawyer mentor of mine used
customers had to sign NDAs
disclose our secrets. to say, “Give me good facts, or
before receiving our first
give me good law; and I can
product samples.
win the case.”

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Developing Your Asset
Protection Strategy —
A Nine-Step Process
Developing a strategy for protecting your company’s interests
and information is like issue spotting on a law school exam.

You review the facts and spot the issues.

Prioritize them and identify the relevant law
which typically describes your rights and
obligations. Then you put all of it into an
analytical blender, drawing conclusions and
making recommendations.

Does that sound complicated? Don’t worry. The

following recommended steps will give you a
starting point as you begin to develop a strategy
to protect your company’s interests against
a departing employee while fulfilling your
obligation to ownership to help them assess risk
and mitigate these situations.

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S E C T I O N 3 : D E V E LO P I N G YO U R A S S E T P R O T E C T I O N S T R AT E G Y —
A NINE-STEP PROCESS
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1.
Understand What Drives Your Client’s Business

As legal counsel, you should engage with the entire team in this step of the process. Participate
in management meetings. Ask questions. Ask to be copied on all management updates, if you
aren’t already. Consider attending trade shows. Become an expert on your client’s business.
You know how to learn. Take notes, keep records, and organize the information the way you
prepared outlines for law school exams.

2.
Understand the Competitive Landscape

Review competitive offerings. Think about what makes your company uniquely competitive,
and what doesn’t. Develop a strategic analysis of your competitors along with their offerings
and customers. Understand where your company fits and where it may fit in the future, into
this landscape. Your business clients call this a “SWOT” analysis: Strengths, Weaknesses,
Opportunities, and Threats. It’s likely that your business colleagues have already developed
a SWOT analysis or equivalent. Obtain a copy and evaluate it against company’s confidential
information and trade secrets. Would the loss of them result in mortal injury to your company?
Or would it impede your growth strategies? These are the jewels that, as a lawyer, you need to
help protect from plundering.

3.
Identify Key Business Differentiators

Categorize and quantify what sets your client’s business apart. What makes your company
successful? What competitive advantages does it possess? Think about Amazon. It started as a
book company and became the largest distribution business in the world. How? It innovated the
concept of online shopping and made it viable for everyone. Amazon is in the customer service
business. And their systems allow for incredible responsiveness. And they keep on innovating.

4.
Create a Hierarchy of Assets

Figure out which of the business’s assets are most important. Which assets are useful but
unnecessary? Which would severely impair the company if lost? Which ones can the company
not survive without?

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S E C T I O N 3 : D E V E LO P I N G YO U R A S S E T P R O T E C T I O N S T R AT E G Y —
A NINE-STEP PROCESS
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5. 6.
Understand How These Understand the
Assets are Protected Relevant Law

Many entrepreneurs start their Have courts in your jurisdiction(s)

company by obtaining patents recognized the inevitable disclosure
under the mistaken belief that it will doctrine? Consider the international
eliminate competition. Certainly, aspects. Just because you have
patents have a role in protecting protection in the U.S. if you operate
intellectual property. But as we’ve internationally, the rules may be
discussed, asset protection runs different. An example are “knock-
deeper than a single document. offs”; products that look a lot like
Asset protection requires a complete the real thing but aren’t. They aren’t
business strategy, comprised of cross- technically counterfeits, however. In
functional decision-making processes some countries, knock-offs are legal.
that complement and enhance Are there relevant laws and statutes?
each other. Become an expert on the law of
confidential information and how
it intersects with employment law,
wherever your company operates or
plans to operate.

7.
Define a Process for Care and Storage of Each Asset

Your storage process should cover all types of assets—tangible, intellectual, digital, and any
others. The process should include certain agreements but more importantly protocols for when
and how these assets are deployed and the steps required to protect them. A key component
is developing a robust, specific, unambiguous confidentiality and non-disclosure agreement.
However, while forms can be useful, they can also perpetuate bad lawyering. As a lawyer, you
need to think carefully about the use of forms and unwittingly enabling the unauthorized
practice of law. And as with the hog-slaughtering in connection with non-competes, overuse
or ill-advised use of NDAs can have the same unintended consequences. Understand each
term and its purpose, and spot the potential ambiguities. Customize the terms to specific
circumstances, projects, and people. The facts are different and the facts change. It may not
be feasible to tailor a NDA for every single factual situation. However, you can group your
company’s business into types of projects and have a semi-tailored form for each.

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NDAs, and Inevitable Disclosure

S E C T I O N 3 : D E V E LO P I N G YO U R A S S E T P R O T E C T I O N S T R AT E G Y —
A NINE-STEP PROCESS
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8.
Train Your People

Every one of the preceding seven Just as with having everyone sign a noncompete or
steps is meaningless unless you train NDA, avoid a “one size fits all” approach. Although
the people who will handle your it’s tempting; reject the idea of canned training
confidential information and trade that may not engage employees in the topic.
secrets. Think back to Coca Cola. To Consultants may love you for the training business,
get to the trade secret, you must and spending six figures on canned training may
get into the vault. Your confidential make you feel as if you’ve done your job. But
information and trade secrets may not remember Sarbanes-Oxley (“SOX”)? How about
be vault-worthy; however, you should the Foreign Corrupt Practices (“FCPA”)? Cottage
teach your employees to handle them industries sprang up following their enactments
as if they were. Use real examples or enforcement. FCPA training became critical
where possible in the training. Teach because the Federal Sentencing Guidelines
them how to mark information as provide for leniency in cases where companies
confidential and how to handle it; have compliance programs. Whether the training
filing, distributing copies and the actually had the intended result, on the other hand,
like. Most importantly, the training is questionable. Did training result in more robust
should clearly teach employees how corporate accountability in the case of SOX? Or did
to know whether certain information FCPA training change employee behavior? Canned
is confidential, a trade secret, or both. training is a way to purchase what you should
They should understand that in case instead be investing your intellectual capital into. It
of doubt, they should reach out to may make you feel good, but it may not accomplish
their supervisor. Explain to them how what you need: educated and competent
to use the confidential protocols and employees who you can enlist to help you protect
processes you have developed. intangible assets.

A better approach is to engage in regularly

scheduled project- and process-specific training.

9.
Maintain Records

Do not deposit NDAs in an employee’s file. Instead, keep them in whatever central repository
you have developed for a project or series of projects. Having every employee sign an NDA and
adding the “Confidentiality” warning on all email footers may do more harm than good. Again,
if everything is confidential, then nothing is. Furthermore, employees can lose perspective on
what is and isn’t confidential when the term confidentiality is overused.

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6
SECTION
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Conclusion
You don’t set out to keep someone from working just because
you’re angry. Vindictive litigation and overreach have brought
non-competes into the legal quagmire of the present, and
courts do not look favorably on the practice.

However, if someone misappropriates your confidential information or presents a

significant risk of doing so, you have tools and strategies to protect your interests.
Be proactive: develop your asset-protection strategy long before you ever need
to employ it. Companies have a right to protect their information, and under most
legal analysis they have a duty to their owners to do so. Using the nine-step process
defined in this manual will set you and your clients on the path to security.

About the Author

Steve Sedberry graduated from Vanderbilt Law School in 2002 after a twenty-
year career in the aluminum industry. He held senior managerial roles with Alcoa and served as
the Chief Operating Officer of a $1 billion primary and secondary aluminum business, Century
Aluminum Company, and was part of the management team that took it public. He entered
Vanderbilt Law School in 1999, at the age of 44. He has practiced law ever since, most recently
serving as Vice President and General Counsel-Americas of a large corporation. He’s written
several books and scholarly articles and has taught continuing legal education courses for
lawyers. As an adjunct professor at Vanderbilt Law School, and Business Law
adjunct professor at Lipscomb University in Nashville, he is a student of business
and law, and he brings a unique perspective to the profession. He enjoys
business strategy and is always looking for the forest amid an overwhelming
number of trees.

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