NDAs and Other Legal Considerations
When Interviewing New Employees from Competitors

a RivalScape interview with Richard Horowitz, Esq.

RivalScape Intelligence Consultants interviewed Richard Horowitz, Esq., on August 31, 2004. Mr. Horowitz is a New York-based attorney with a military background and a private investigator license. He focuses his law practice on legal issues of an investigative or security nature. One of the issues his practice covers is business intelligence, namely, how to obtain information about your competitors in a legal manner and how to protect yourself from people who are trying to obtain that information. Mr. Horowitz has significant corporate intelligence experience, which includes working with companies to review and revise training and compliance programs and advising his clients on dealing with real life situations and decisions that have to be made in conducting CI.

Disclaimer: This interview is expressly intended to provide a stimulating discussion for the benefit of our clients, potential clients, and interested members of the public. In this interview, neither Richard Horowitz, Esq. nor RivalScape is providing specific legal advice, only general information on the subject. Be sure to check with legal counsel for advice on any specific situations and decisions you face.

RivalScape: Richard, could you to define a “Non-Disclosure Agreement” (NDA), in practical terms?

Horowitz: A Non-Disclosure Agreement is an agreement between an employer and the employee that says the employee will not disclose information that is specified in that agreement, both during the employment period and after the employment terminates.

RivalScape: How does an NDA differ from a confidentiality agreement (CA)?

Horowitz: In practical terms they are really the same. If a person is asked to sign an NDA or a confidentiality agreement what’s important is what the text says, not the name of the document.

RivalScape: What are the general categories of information that are covered in a typical NDA or CA?

Horowitz: The general principle is that the agreement includes those items that the company doesn’t want the public or its competitors to know. The general categories would be information that the company feels would be to its detriment were a competitor to find out about it. They might include certain pieces of financial information, product information, and technical information. The agreements may restrict answers to such questions as:

What products do we intend to come out with in the coming two years? What products are we working on that are going to come out soon? How are particular products made (where the company wants to keep the process confidential because it views that process as a trade secret)?

It’s possible a company would want particular aspects of its financial situation kept confidential because people could figure out how the company may or may not be doing. So those would be the general categories.

RivalScape: When an employee signs one of these agreements, what are their typical obligations under it when they leave that firm and join a competitor?

Horowitz: Well that’s an interesting question. The obligations are to abide by the agreement, which by definition is not to disclose what the agreement talks about. Often the agreement will specify that it is binding even after the employment terminates. People should be aware that there are many situations where, even if there isn’t a written NDA, a person isn’t allowed to disclose certain types of confidential material he learned by working for an employer.

RivalScape: What would give rise to those kinds of situations?

Horowitz: Those situations are called “implied agreements” as opposed to “express agreements.” Express agreements are something that is written down, that’s easy to understand. An implied agreement is if the person understood, by the way the company was handling certain matters, that it expected people to keep these matters confidential and that the company in fact kept those matters confidential. The principle is: If you are on someone’s payroll you have a duty of loyalty to that person. You can’t get paid by someone and then work against that person’s interests. So that duty of loyalty not to disclose certain things from someone from whom you’ve obtained a salary can apply even after you’ve left employment.

RivalScape: So the way the company handled certain matters implies that these matters can’t be disclosed. What are some examples of that?

Horowitz: If you knew that it was accepted company practice that documents regarding a certain project were stamped “CONFIDENTIAL” and were kept in a locked safe or file cabinet at the end of the day and people were told not to discuss it with anyone, that’s a clear way of keeping things confidential. Generally, if a company locks things in safes and tells people not to discuss it you would expect there would be confidentiality agreement or an NDA.

It may happen that a company wouldn’t ask you to sign an NDA. However, if, by the way the business is being run, you understand the company expects you to keep certain matters confidential, and you are accepting a salary with that understanding, then you would have an implied duty to keep those matters confidential after you left also.

RivalScape: Richard, that brings up another question….is there a standard amount of time that a typical NDA remains in effect after the employee leaves the company?

Horowitz: There is no “standard” amount of time that an NDA remains in effect. If an NDA does not state when it terminates, then a general rule to use is that your confidentiality obligation to your former employer remains in effect so long as the matter in question remains confidential.

RivalScape: What are some other ways that an employee would know by the way a company handles certain matters that they want those matters kept confidential?

Horowitz: For example, if a company gives tours of its plant but people are prohibited from entering certain areas, or if they can enter certain areas only if they sign an agreement not to disclose.

RivalScape: Would you say it is important for the new employer to be aware that a new employee from a competitor is under NDA?

Horowitz: Yes, it would be important. In terms of good practice the interviewer often states in the beginning of the interview that he or she doesn’t want the interviewee to provide any information against any NDA that he signed. That’s good practice. You know, there are companies that take other views. They are going to interview and if someone says something that perhaps they shouldn’t have said it’s not always clear that this information was confidential. If you don’t know it was and the person has disclosed it, and you didn’t do anything to induce it, in many cases companies will say “you know something, I’m just going to use what I get.” That’s a judgment call and legal arguments going both ways can be made.

RivalScape: Are there any cases right now that we should be watching that might clarify that?

Horowitz: There are cases all the time. Some of it has to do with what jurisdiction you are in because different jurisdictions have different nuances in these rules. There is no legal obligation to say to the interviewee, “we don’t want you to disclose confidential information.” That’s not a legal obligation, that’s a good practice. There are companies that say “we’ll take what they give us and if we get sued we’ll fight it in court.” That is one way of handling it and that may not be the best way to handle it or the safest way to handle it but there are companies that take that position.

RivalScape: How much should the new employer know about the new hire’s NDA with a competitor? Do you recommend that clients find out about it, know what it says? How do you come down on that in general?

Horowitz: There is no one recommendation. Clearly the safest thing to do is to say, “if you are coming to an interview please bring us a copy of your NDA and do not disclose anything that may be confidential.” That’s the safest thing to say in terms of risk of getting sued. But many companies don’t want to do that because it sounds almost like you are afraid for the person to speak and you don’t want to create that impression. There is no one piece of advice that covers every company. A lot depends on what kind of risk a company is willing to take and a lot depends on the expertise of the interviewers. There are interviewers who are very good at understanding when the interviewee is saying things he shouldn’t and will explain to the person not to say things he shouldn’t.

RivalScape: If a company wanted to initiate a “Competitor Alumni Program,” (CAP) wherein the firm sets up a formal process of interviewing new hires from competitors to draw out their knowledge and insights, what general advice would you have for them in order to avoid legal problems?

Horowitz: General advice would be to avoid obtaining information that is confidential because if you obtain it you open yourself to the risk of being sued. It doesn’t mean you will lose the lawsuit, but that’s a risk. So avoid obtaining information that the competitor would consider confidential. Now that doesn’t mean you aren’t allowed to talk to someone about his former employer. They are entitled to talk about their general experiences. Not everything that a person experiences at a company is confidential. Now there may be NDAs that say “anything and everything that takes place here is confidential.”

RivalScape: Is that enforceable though?

Horowitz: That’s a good question. Just because something is in writing doesn’t mean it’s enforceable. Certain NDAs and certain non-compete agreements are held by the courts not to be enforceable. When and how certain things are enforceable is already too detailed for this interview. A general rule of thumb is: If your company views this same type of information as confidential you could expect that your competitor does as well.

RivalScape: What we’re after in a CAP initiative is to capture public, but not necessarily published, information from new hires. We want their opinions and observations about their former employer and how they view the competitive landscape. How does that differ from a “trade secret” or “proprietary information?”

Horowitz: “Trade secret” has a definition to it. Trade secrets are not opinions and observations about a person’s working experience. A trade secret is information that provides economic value to the holder of the information, is not readily ascertainable or publicly known, and that the holder of the information used reasonable precautions and measures to keep the information secret. That’s a trade secret.

RivalScape: OK, good examples are the Coca Cola formula and the source code for Microsoft, right?

Horowitz: Right. The Coca Cola example is the most famous example. A person may know trade secrets from his company that he would be expected to keep confidential. But he or she is entitled to talk about his general knowledge or general working experience, that would be OK.

RivalScape: Where is the line drawn with “proprietary information?” Trade secrets are one thing, but what about proprietary information coming up in an interview?

Horowitz: It depends how you are going to define “proprietary.” The definition of trade secrets is more widely understood because the courts have defined what trade secret information is and what trade secret protection is. As for proprietary information and confidential information, companies can have their own definition of what they consider to be proprietary and confidential. It’s generally information they don’t want known out there but that doesn’t meet the definition of a trade secret. There could be different wording to the definition of proprietary or confidential.

RivalScape: You talked earlier about how some interviewers are very skilled. How much training should the interviewers in a Competitor Alumni Program have concerning these issues prior to kicking off the program?

Horowitz: Well, the easy answer is enough information to properly do the job. It can’t be defined as three years, for example. The interviewing professionals in HR need to make a determination about how much training is necessary in order to do the job properly. There is no topic of law called “the laws of talking to people.” If you look in any law book you won’t find it. You’ll find laws about not being allowed to induce another person to breach a duty of confidentiality. You’ll find laws about not using information if it was obtained by someone who himself breached his duty of confidentiality or used improper means to obtain the information. That you’ll find. So those laws are incorporated into interviewing techniques, so that is what you have to be familiar with.

RivalScape: In conducting the interviews, what are the warning signs for the interviewers that the new hire may be violating his or her NDA?

Horowitz: If the interviewee is providing information that you didn’t expect to get and that you understand from your knowledge of the industry is confidential, then you know he or she may be violating an NDA. There are people who will try to impress you by saying things they really know they shouldn’t. And the interviewer should not only be a good interviewer, but also has to know the industry about which he’s interviewing. If you know the industry, you’ll have a sense for what companies keep confidential and what companies don’t keep confidential.

RivalScape: I thought it was interesting earlier when you said that the best test is: If our own company would consider this information confidential, then we should assume our competitor would also.

Horowitz: Right. Now there is another factor about which individual companies and their lawyers have to make a decision: You could maintain that if a person accidentally discloses information he or she shouldn’t have, then the information loses its trade secret protection. Now the company he worked for isn’t going to take that position, but you are entitled to take that position. If you want to run the risk of being sued and argue it in court you are free to do that. But that is a decision that companies themselves with their attorneys have to make.

RivalScape: What should the interviewers do if they suspect this may be happening?

Horowitz: It depends on how aggressively a company wants to conduct its affairs. The safe thing to do is to explain to the interviewee that “we do not want you to disclose to us any information that you are required by your former employer to maintain in confidence.” That’s the safest thing. There are companies that are going to take the position that if a person talks, and displayed a lack of reasonable precautions when he was speaking, then the information loses its trade secret protection. A company is free to take that position if it wishes, but they should consult with their attorney first. The safest thing to do is to reiterate to the interviewee that you don’t want him or her to disclose anything they aren’t supposed to.

RivalScape: Is there anything else you think is important to bring into this discussion, Richard?

Horowitz: One thing I want to reiterate is that the interviewer should not only be a good interviewer but should be familiar with the industry he or she is dealing with. That’s important. The interviewer should be familiar with the industry’s literature and issues.

Also, depending on how substantial the company is, you might want to keep abreast of case law dealing with “employee mobility issues.” Employee mobility means employees moving from one company to the next. Employee mobility cases involve NDA issues and non-compete issues. These cases are very common in America.

Finally, all these things we’ve talked about should be done in consultation with your legal department. A lot of what takes place here are judgment calls. The law would be “do not accept information from someone who is violating a duty of confidentiality.” That’s the law. That is clear. But then there are judgment calls. How are you supposed to know this? What do you have to do in order to find out and to ascertain? Those are judgment calls. And on those, you need the advice of your lawyer.

RivalScape: A Competitor Alumni Program is one HR and/or CI function. But there are other activities like job fairs, recruiting and career opportunity events that are conducted by corporations. Do the legal issues and rules of thumb we’ve talked about apply also to one of these situations, where a candidate might walk up to your recruiter at a booth and talk about their background and experiences?

Horowitz: These laws apply to situations where the new company is obtaining information from an employee or former employee of a competitor. It’s the dynamic that is significant. The dynamic is that company X is interviewing a former or current employee from company Y. Whether it is a job fair or the person answered an ad in the newspaper is secondary. The same basic principle applies: Don’t accept information from someone who is violating a duty of confidentiality by giving it to you.

RivalScape: Thank you for talking with us today, Richard!