Guidelines for Protecting Your Startup’s Confidential Information - Part 1

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[author: Michael Caldwell]

This part and Parts 2 and 3 will take a brief look at how you can protect your startup’s confidential information from being disclosed by current and former employees, what you can do to protect your firm’s confidential information before it is disclosed or – worse – stolen, and what you can do if your confidential information has already been disclosed to a competitor or other third party, whether in the course of your business or by a government regulatory authority, consultant, franchisee or any other party.

Protecting Confidential Information from Disclosure by Employees

Employees owe their employers a general duty of good faith. This means that employees must act in the employer’s best interests and must not compete with their employer during the employment relationship. Absent a contractual commitment otherwise, however, the employee is free to compete with his or her former employer, and, in doing so, cannot be prevented from using the knowledge, skills and experience he or she acquired as a result of working for that employer. At the same time, employers generally have a right to expect their employees to keep confidential information confidential and not to use it for their own benefit after moving jobs or launching their own startups. The more senior the employee, the greater the duty that the employee owes to a former employer.

These rights and duties of employees are only a starting point, though. Startups often take and should always consider additional precautions to help protect their trade secrets. Non-disclosure agreements (also known as confidentiality agreements) with employees, consultants, designers and manufacturers, franchisees, licensees (to take a few examples) can be used to better protect your firm’s confidential information. Additionally, in some cases certain employees and co-founders should be asked to provide further assurances to your firm by signing a non-competition agreement.

Apart from contractual precautions you can take to guard against the disclosure of confidential information by employees and other parties, however, in all cases of confidential information it is prudent and advisable to implement and follow information management practices that can both establish and protect the confidentiality of your firm’s information. These might include:

1. controlled and, where possible, documented access to confidential information;

2. sound document destruction practices;

3. monitored and restricted access to premises by visitors, including sign-in and use of “visitor” identification badges;

4. a consistently-applied review of all marketing materials, speeches and other public disclosures for confidential information; and

5. an effective policy of educating employees and contractors about confidential information and the processes protecting it.

Such practices will not only help prevent your confidential information from inadvertent disclosure and protect it from economic espionage, but also, importantly, having such safeguards in place will help you claim and prove the confidential status of the information if it is necessary to stop a third party from using it or sharing it publicly or with competitors. In short, if you would not want a competitor or other interested party using or publishing certain information about your business, it is best not to wait until the competitor or third party has the information before you think about how you might go about arguing that it is not public information, free for all to use.

To that end, the next entry, Part 2, will discuss a simple precaution that you can take to protect the confidentiality of your firm’s information, even if it is in the hands of an innocent third party and even if you are unaware that the information has been improperly disclosed. Part 3 will address two actions that your firm can take after discovering that your confidential information has been disclosed which can help limit further disclosure or misuse.

Michael Caldwell is an articling student with FMC's Ottawa office.

Please contact Michael Caldwell or David Little for more information.