What Do When You are Hired by a Competitor of Your Former Employer

It is not uncommon for companies to routinely perform a forensic examination of departing employees’ company devices, particularly employees with access to very sensitive information.

A 2022 U.S. Bureau of Labor Statistics report showed that employees earning wages and salaries averaged about 4.6 years working with the same employer. Another human resources research report suggested that the turnover rate can be close to 19%, which after Covid-19 grew even higher. Many reasons account for employee transitions, including an employee’s dissatisfaction with current challenges and growth opportunities in a position. Employee turnover is especially common in the technology sector. However, employees in the technology sector departing for a competing company must take special care during the transition due to technology companies’ heightened concern for protecting trade secrets. 

Trade Secrets 

The Uniform Trade Secrets Act (UTSA) is a federal framework meant to protect sensitive trade information. The UTSA was completed by the Uniform Law Commissioner in 1979, then amended in 1985. Before the UTSA, each state was responsible for governing the misappropriation of trade secrets. The UTSA created a uniform rule among most states in handling the misappropriation of trade secrets. 

California is one of the many states that enacted the UTSA. According to California Uniform Trade Secrets Act (CUTSA), a “trade secret” is defined by statute as: 

information, including a formula, pattern, compilation, program, device, method, technique, or process, that: 

1. 1. Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and 
   2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Civil Code section 3426.1(d)

Trade secrets are not specific to the technology sector. They are used in almost every industry. Any information that has monetary value and that the company takes reasonable efforts to keep a secret may be considered a trade secret. Trade secrets can take many forms, including formulas, source code, patterns, financial data, processes, and customer lists.  

Many companies throughout California – particularly in Silicon Valley – supplement this basic legal framework by requiring employees to sign contracts addressing the handling of confidential information. These contracts are often labeled “non-disclosure” agreements or “confidentiality” agreements.  Some of these contracts even include (mostly-unenforceable) “non-compete” provisions purporting to restrict the employee from working for a competitor after leaving, while others include clauses purporting to prohibit former employees from directly soliciting the former employer’s clients.  In general, the goals of these types of contracts and provisions are to deter and to prevent employees from taking sensitive company information when leaving the company and using it to the disadvantage of the employer.

Do’s and Don’ts when leaving one company for its competitor

• Do not copy or access items without authorization or outside of the normal course

When leaving one company for a competitor, it is crucial to be thoughtful about what files and information you access or copy in the time leading up to your departure. As a general rule, you should not change your usual habits and practices, and you should access only files necessary to perform your current work and any assigned transition tasks.  A sudden increase in access or copying of files – particularly files with no clear connection to your current job or transition duties – will raise red flags and cause concern that you are gathering information to use in your new position with a competitor.    

• Assume that your personal work devices (company-issued laptops and phones) will be forensically examined and your network access logs reviewed: do not delete anything

  

It is not uncommon for companies to routinely perform a forensic examination of departing employees’ company devices, particularly employees with access to very sensitive information.  Even if not routine, companies frequently take this step if there are preliminary concerns about unusual network access or any other reason the employer has a concern that the employee may use company information at a competitor.  Forensic examination can provide a wealth of extremely detailed information about your usage of the computer or phone, including history of file access, printing, copying to external devices, and file deletion.  Completely deleting all information (or performing a factory reset) prior to returning the devices is often a bad idea, because it looks like you are trying to hide something and generally only raises the company’s suspicions.  In sum, you should assume that the company will be reviewing your device usage history, and you should not take actions that might suggest that you  are trying to hide or misappropriate information . 

• Do not mislead your current employer about the circumstances of your departure and the opportunity at the new company

Being truthful with your employer about your departure for a competitor may benefit you. For example, your employer may tailor your exit interview and instructions based on your representations, and your compliance with the company’s express instructions can be an excellent defense to any allegations of misconduct that arise later.  Conversely, if you are not honest about the type of work you will be performing or the nature of the new job you are taking, your old employer can often learn that information anyway (e.g., through LinkedIn profiles), and your lack of candor can cause the company to do a deeper forensic investigation of your activities before your departure.

• Do not use any trade secrets once you get to a new employer

Use of a former employer’s trade secrets at a new job can subject you and your new employer to an expensive and stressful lawsuit by your former employer.  Because of this, on-boarding documents at a new job frequently require you to certify that you are not misappropriating any trade secret or confidential information from a former employer in your new position.  Failure to live up to that certification can result in your termination from the new company.  

If you are planning on transitioning from one employer to a competitor, one of our experienced trade secrets lawyers at Delahunty & Edelman may be able to help you navigate the complexities of your unique situation and guide you in avoiding exposure to allegations of trade secret theft and related misconduct. We have counseled both employees making such career transitions and employers that have had to investigate them.  Let our experience help make these employment transitions about new opportunities, not past mistakes.