confidential information

The Legal Meaning of Confidential Information

Are you unsure whether information you learned at a previous job is actually “confidential”? Big lawsuits erupt over the use of “confidential information,” and you never want to be caught in that eruption.

At Gardner Employment Law, we have been involved in those lawsuits and can help you avoid problems in your current job.

The Importance of Confidentiality in the Workplace

Confidential information, in the legal sense, is any information material to the operations of a business which cannot be learned outside of that business. Confidential information exists in all forms: written, spoken, observed, electronic, or otherwise.

Some examples of confidential information:

confidential information

Information is not confidential, however, if you knew it before you were hired or if you can learn the same information outside company walls, such as on the Internet, at a conference, from colleagues, from vendors or other third parties. Only the information that is material or critical to company operations that you learn as a result of your employment can be classified as “confidential.”

Companies spend large sums of money to develop valuable information to best their competition. Since that information is both valuable and unique, confidential information is an asset. One of the best examples that illustrates the concept of confidential information is Coca Cola’s formula for that brown fizzy liquid which is the number one seller in carbonated drinks. How many people love “Coke”?  As explained in “Noncompete Lawyer,” the upper management of Coca Cola holds this formula so valuable that it has never been written down, never patented, and disclosed only to a very select few people at the very top of the company.  As a result, Coca Cola maintains its number one position in the market against the second best, Pepsi, by many percentage points.

Must There Be a Contract Requiring Confidentiality?

The short answer is “no.” Whether in writing or not, Texas law prohibits you from using or “disclosing,” i.e., letting anyone know, confidential information that you learned while employed by a company. Even if you did not sign any document or contract agreeing not to disclose confidential information, you still are bound to maintain its secrecy as a matter of law.  That is why it’s important for you to understand the meaning of “confidential information.”

What Is an NDA?

An NDA is a contract.  The term “NDA” is an acronym for “non-disclosure agreement,” and it surfaces in many business deals and employment documents. This may be a “belt and suspenders” approach in employment situations, since the Texas common law prohibits an employee from disclosing confidential information to third parties. Employers frequently require employees to sign NDA’s, however, as a strong reminder of their responsibility to maintain the confidentiality of information.

There is another reason for requiring employees to sign this contract. If an employee does later disclose confidential information, breach of the NDA provides another claim to pursue in court, breach of contract. If the company prevails, not only does it win the right to maintain its confidential information, but the company also can recover its attorneys’ fees and costs for prevailing in a breach of contract claim.

Are Trade Secrets Confidential Information?

Absolutely! Trade secrets are a subset of confidential information. Confidential information is broader in scope and is not limited to trade secrets. You can think of trade secrets as intellectual property rights that can be sold or licensed.

The Texas Legislature passed a statute protecting trade secrets, the Texas Uniform Trade Secrets Act.  Under that statute, to constitute a “trade secret,” the following is provided:

“Trade secret” means all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

Trade secrets, thus, must be quantifiable by an economic value.  Many times trade secrets can be patented. “Confidential Information,” on the other hand may not have an independent economic value but if misused it nevertheless can damage an employer’s business.

Where Do Problems Arise with Confidential Information?

I receive many calls and review many legal documents regarding disputes over the term “confidential information.” Sometimes overzealous employers attempt to classify almost everything as “confidential.” When an employee departs, especially if there is acrimony and the employee has been terminated, employers may overreact and try to limit the departing employee in his or her new jobs. Fear is driving the employer, fear that the employee will be vindictive.

To resolve disputes such as these, reverting to the standard definition of “confidential information,” as I have explained above, should be enough. This is not really a difficult process if we apply detached, unemotional analysis.

What Is the Extent of Your Duty?

As an employee, you first must identify confidential information where you’re employed and distinguish what is and what is not “confidential.” Employers typically will ask you to sign a NDA, which may be a requirement of the position.

Since NDA’s are legally binding contract, you should slowly and carefully read the document before you sign it.  See an expert contract lawyer if you are unsure as to what the document requires of you. Texas law presumes that anyone who signs a document has read and understood the terms.

Employers cannot force an employee to sign an NDA.  However, an employer has the right to run the business as they choose.  Based on General Mills v. Hathaway, the employer must give you unequivocal notice of any change in the terms and conditions of your employment, such as the signing of a new NDA.  If you are asked to sign one, you are not legally required to sign the NDA, but because of employment at-will and General Mills v. Hathaway, the employer is not legally required to employ you if you refuse to sign the document. Chances are if you flatly refuse to sign, the employer may invite you to the door. Before doing that, see an expert contract lawyer who may be able to help you renegotiate some of the harmful terms.

Prioritize Confidentiality

Be sure to keep copies of all the disclosure forms and any other agreements you sign while employed by any company.  Maintain these copies after you leave.  You never wanted to be sued for violation of your duty of confidentiality or breach of contract, and these documents will be critical to your defense.

Especially when going to work at a new job, carefully think about what may be confidential from previous employment. If that information is not common knowledge or accessible to a third party, it’s best not to mention it and to refrain from using it.

A suggestion that I can offer from my 20+ years of practicing law is that you don’t want to burn any bridges with prior employers who supported you. Providing details about how that prior employer ran its operations can send those bridges up in flames.

To Disclose or Not to Disclose

If you have read this far, you now have some understanding about the legal meaning of confidential information. There can be extreme penalties if confidential information is not handled properly. Confidentiality is serious business.

If you have questions or are facing a controversy, we’re here to help.  Feel free to contact Gardner Employment Law.

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