Employee Breach of Loyalty and Trade Secret

The common law outlines the duty of loyalty owed by employees to their employers. When acting in any way related to the employer, the employee has to act in the employer’s best interest. Employees who conduct their own similar business to their employer should give the employer’s business first preference when they do so. Everything the employee receives or is given from the employer (other than compensation) is the employer’s property, regardless of whether the acquisition came during or after the employment agreement. Trade secrets can be acquired unfairly if obtained accidentally, theft, fraud, coercion, or other unethical means. Using or disclosing a trade secret that has already been acquired unfairly by another source or, in either case, taking possession of a trade secret knowing that it was acquired unjustly by others, or even when gross negligence fails to yield any knowledge of the earlier unfair acquisition.

The Theft of Trade Secrets
Some of the ways through which the trade secrets get stolen are as follows:

Espionage in the industrial sector – The intense competition from domestic and export markets has also led to a considerable rise in industrial espionage, also known as industrial theft. There is an increase in this activity because of a deteriorating employee retention environment, shorter product cycles, thinning profit margins, and increased global competition.

External threats – Cyber-attacks on corporate networks are one example of hacking attempts on networks (hacking), theft of laptop computers, and more. By implementing work-safety measures and confidentiality clauses, businesses protect their trade secrets. Such clauses are incorporated into employment contracts, technology licensing agreements, distribution agreements, and joint venture agreements.

Internal theft – Employee dissatisfaction results in intentional theft. Competitive intelligence operatives often take advantage of these people, either for financial gain or merely out of spite.

The Liability for Misappropriating Trade Secrets
In the case of misappropriation of trade secrets, a successful business is likely to recover an injunction, damages, and attorney’s fees.

Injunction: Misappropriation of trade secrets can be combated with injunctive relief. A business may file documents seeking temporary restraining orders and preliminary injunctions if it believes its confidential information is being used or disclosed by another business or person. Pretrial proceedings can occur pretty quickly since they are merely preliminaries. There is usually fierce opposition when an attempt is made to gain an injunction. Here is when most misappropriation of trade secret lawsuits is decided. Injunctions can often lead to settlements of lawsuits.

Damages: Misappropriation of trade secrets can expose a person or business to damages. An unfair use of information can lead to lost profits. Additionally, the jury may award punitive damages to defendants who misappropriated property with deliberate or malicious intent.

Attorney Fees: The prevailing party may also be able to collect its reasonable attorney fees from a confederate or competitor that violated its trade secret

Breach of the Duty of Loyalty
Officers and directors owe certain fiduciary obligations to a corporation as a legal matter. Loyalty is one of the fiduciary duties owed by officers and directors to the corporation. Each officer and director has the duty of loyalty by acting with good faith and in the best interest of the corporation.

File a lawsuit against the employee – Whenever an organization believes an employee has breached their duty of loyalty, it can sue that individual for financial damages as well as injunctive relief. There may be numerous contractual and tort claims and statutory obligations involved in the lawsuit, depending on the facts. To determine whether filing a lawsuit against an employee would be in the company’s best interests, the employer must carefully calculate the monetary damages caused by the breach of duty.

Wrongful termination defense – As a defense to wrongful termination, the duty of loyalty may also be invoked. For instance, a competitor was fired by the employer because the employee formed a competing business. A jury of appeals ruled that a divided loyalty was sufficient ground for termination of the employee.

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