One of the most valuable assets companies have are their customers. Protecting valuable customer information is not always easy, particularly when employees leave and go to work for a competitor. Unless an employer has taken appropriate advance precautions, the employer often is unable to stop former employees from using their customer information to compete against them. This article addresses the extent to which customer lists are protected under Connecticut law and what steps an employer can do to protect its customer information.
Factors in a Trade Secrets Determination
Whether a customer list is protected under Connecticut law generally depends on whether the customer list rises to the level of "trade secret." Connecticut courts have used the following factors in determining whether customer information merits trade secret protection:
- the extent to which the information is known outside the business;
- the extent to which it is known by employees and others involved in the business;
- the extent of measures taken by the employer to guard the secrecy of the information;
- the value of the information to the employer and to his/her competitors;
- the amount of effort or money expended by the employer in developing the information;
- the ease or difficulty with which the information could be properly acquired or duplicated by others.
Town and Country House and Home Service, Inc. v. Evans, 150 Conn. 314, 319, 189 A.2d 390, 393 (1963). While Connecticut courts have treated customer lists as trade secrets, they are considered the periphery of trade secret law. The Connecticut Supreme Court has stated that a customer list is a trade secret "if their trade and patronage have been secured by years of business effort and advertising and the expenditure of time and money." Id. at 319-20, 189 A.2d at 393-94. However, if the list is "readily ascertainable through ordinary business channels or through classified business or trade directories" then the list will not be considered a trade secret. Id. See also Gardocki v. Goldring Home Inspections, Inc., 1991 WL 213769 *3 (Conn. Super., October 11, 1991).
In most cases, Connecticut courts have found that employees in a particular industry know what public resources to consult in order to identify customers, and therefore, courts do not consider customer information a trade secret. See Robert S. Weiss and Associates v. Weiderlight, 208 Conn. 525, 539-40, 546 A.2d 216, 224 (1988).
Generally, a mere list of customer names and addresses will not be deemed a trade secret. If the customer lists contain specific customer information such as the key contact person, particular needs or requirements or other information about customers that would be advantageous in the business but not publicly available, then such lists could be considered trade secrets. See Aloi Electric Services, Inc. v. ASAP Fire Equipment, LLC, 1997 WL 500844 *1-2 (Conn. Super., August 12, 1997).
Protecting Your Trade Secrets
While there is no guarantee that a court will grant trade secret protection to an employer's customer list, there are a number of affirmative measures employers may take to enhance the likelihood that a court will grant them trade secret protection.
First, employers should promulgate and disseminate to their employees a written trade secret policy that specifically identifies customer information as a trade secret. Likewise, employers should implement security measures to restrict access to customer records and computer files that contain customer records. Only employees who need such information should be granted access. Employers should avoid making multiple copies of confidential customer information and require that all documents containing customer information be labeled as "confidential."
To further ensure protection of customer information beyond that of trade secret law, employers should enter into written agreements or restrictive covenants with their employees. Such restrictive covenants may take several forms.
One type of restrictive covenant is a non-compete agreement, which prohibits a former employee from working for a competitor. Courts will only enforce such covenants, however, if reasonable in terms of scope and time period. See Robert S. Weiss and Assoc. v. Wiederlight, 208 Conn. 525, 530-31, 546 A.2d 216, 220 (1988). Another restrictive covenant is a non-solicitation agreement. This agreement precludes an ex-employee from soliciting the former employer's customers and/or employees. The former employee still is free to work for a competitor and solicit other potential customers and employees. A non-solicitation agreement is less onerous on an employee and, therefore, courts are more likely to enforce such agreements even if the agreement is not specifically limited in time and scope. See Id. at 530-31, 546 A.2d at 220. A third form of restrictive covenant is a non-disclosure or confidentiality agreement, which limits a former employee's ability to use or disclose information designated as "confidential" or "trade secrets" by the former employer. This form of covenant is even less burdensome than a non-compete or non-solicitation agreement. Non-disclosure agreements can be difficult to enforce, however, because the former employer may not always be aware that a former employee is using confidential information.
All three types of restrictive covenants have advantages over relying on common law tort and contract doctrines. Such agreements can be used to show the employee knew the customer information was considered confidential and that its disclosure could harm his/her former employer. Further, it is far better to show a court a written agreement acknowledging confidentiality than attempting to prove an employee was aware of the confidential nature of the customer list without written proof.
To protect customer lists from use or disclosure by former employees, there are various methods employers should consider. While there is no way to prevent all ex-employees from using or disclosing customer information for their own benefit, employers who take appropriate precautions will be in the most advantageous position for obtaining relief if former employees decide to use confidential customer information.