Former Employee Stole Trade Secrets? Here Is Your Action Plan

Your company’s intellectual property is often its most valuable asset. Whether it’s a proprietary formula, a confidential client list, or a unique manufacturing process, these assets give you a competitive edge. But what happens when that edge walks out the door?

The theft of trade secrets by former employees is a nightmare scenario for many business owners. It feels like a betrayal of trust, but beyond the emotional impact, the financial and operational consequences can be devastating. If you suspect a former staff member has taken confidential information, time is not on your side. Every hour that passes allows them to disseminate that information, potentially handing your hard-earned advantages directly to a competitor.

The trade secret attorneys at Emerson Thomson Bennett outline the critical steps you must take immediately to protect your business, the legal avenues available to you, and how to prevent future misuse.

Identifying Misuse: How to Spot the Red Flags

Before you can act, you need to confirm that theft has occurred. Trade secrets can include a wide range of confidential information, from technical designs and computer programs to marketing strategies and customer databases.

While some theft is obvious — such as a former salesperson immediately poaching your top clients — other forms are more subtle. You might notice:

• Data spikes: Logs showing a massive download of files to a personal drive or cloud storage account in the days leading up to the employee’s resignation.
• Unusual email activity: Company documents being forwarded to a personal email address.
• Missing devices: External hard drives or USB sticks that vanished when the employee left.
• Competitor similarities: A competitor suddenly launching a product or service that mirrors your confidential roadmap shortly after hiring your former employee.

Recognizing these signs early is crucial for limiting the damage.

Immediate Steps: Stop the Bleeding

Once you suspect a former employee has misused your confidential information, you must act decisively. The goal is to stop the dissemination of the data and preserve the evidence you will need for legal action.

1. Secure and Preserve Evidence

Your first move is to lock down your digital environment. Immediately disable the former employee’s access to all company systems, including emails, networks, servers, and cloud accounts. If they still have remote access, cut it off instantly.

Next, you must preserve the digital footprint. It is tempting to immediately wipe a laptop to reissue it to a new hire, but this destroys critical evidence. Instead, imagine the hard drives of any company devices (laptops, phones, tablets) used by the employee. Forensic imaging creates an exact copy of the drive, preserving data that proves when files were accessed, copied, or deleted.

2. Document Access and Activity

Create a detailed timeline of the employee’s actions. Document what systems they accessed and when. Did they access files irrelevant to their job function? Did they access sensitive folders right before resigning? Detailed records of your investigation are vital for building a case.

3. Consult Legal Counsel

Do not attempt to handle this alone. Hire one of our attorneys who is experienced in trade secret law immediately. They will guide your internal investigation to ensure you don’t accidentally compromise evidence or violate privacy laws. 

Furthermore, engaging counsel early ensures that your internal communications regarding the theft may be protected by the attorney-client privilege.

4. Review Employment Agreements

Pull the employee’s file and review every document they signed. Look specifically for:

• Non-Disclosure Agreements (NDAs)
• Non-Compete Agreements
• Non-Solicitation Agreements
• Employment contracts with confidentiality clauses

These documents establish your legal standing and the employee’s contractual obligation to maintain secrecy.

Legal Options: Enforcing Your Rights

Once you have secured evidence and consulted with counsel, you have several legal tools at your disposal to recover your trade secrets and seek damages.

Send a Cease-and-Desist Letter

Often, the first formal step is a cease-and-desist letter sent by your attorney. This letter puts the former employee (and potentially their new employer) on notice. It demands that they immediately stop using or disclosing your confidential information and return any stolen data. In some cases, the threat of legal action is enough to resolve the matter.

Seek Injunctive Relief

If the letter does not work, or if the threat is imminent, you may need to file for a Temporary Restraining Order (TRO) or a preliminary injunction. This is a court order that forces the former employee to stop their actions immediately to prevent “irreparable harm” to your business. This is a powerful tool to stop the misuse while the lawsuit proceeds.

File a Lawsuit

You may file a lawsuit under state laws, such as the Uniform Trade Secrets Act (UTSA), or federal law, specifically the Defend Trade Secrets Act (DTSA). These laws provide robust mechanisms for employers to protect their intellectual property.

Through a lawsuit, you can seek:

• Return of Secrets: A court order requiring the return of all confidential data.
• Damages: Compensation for actual losses suffered or for the “unjust enrichment” the former employee (or their new employer) gained from the theft.
• Legal Fees: Reimbursement for your attorney costs.
• Exemplary Damages: In cases of willful and malicious theft, the court may award additional damages as punishment.

Key Consideration: The Computer Fraud and Abuse Act (CFAA)

When investigating, be careful not to overstep. While you can investigate company-owned devices, accessing the former employee’s personal devices or accounts without authorization could violate the Computer Fraud and Abuse Act (CFAA). Always let your legal counsel guide the investigation to ensure you stay on the right side of the law.

Prevention: The Best Defense

While you can sue for damages, the best strategy is to prevent theft before it happens. Protecting trade secrets requires a proactive approach.

• Enforce Least Privilege: Employees should only have access to the data they need to do their jobs. Marketing does not need access to engineering blueprints, and vice versa.
• Robust Offboarding: The exit interview is your last line of defense. Remind departing employees of their continuing obligations under their NDAs. Collect all devices and keys immediately.
• Regular Audits: regularly review who has access to sensitive information and revoke permissions that are no longer necessary.

Protect Your Business Today

The misuse of trade secrets by former employees is a serious threat that requires a serious response. By acting quickly to preserve evidence and leveraging the legal protections available under the UTSA and DTSA, you can mitigate the damage and protect your company’s future.

However, complex legal battles regarding intellectual property require legal guidance. Attempting to navigate these waters alone can lead to procedural errors that weaken your case.

If you suspect your intellectual property has been compromised, don’t wait until the damage is irreversible. Contact ETB Law today for legal assistance in trade secret protection and litigation.