NDAs and Other Legal Considerations
When Interviewing New Employees from Competitors
a RivalScape interview
with Richard Horowitz, Esq.
RivalScape Intelligence Consultants interviewed
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)?
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:
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
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?
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
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
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.
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?
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.
What are some other ways that an employee would know by the way
a company handles certain matters that they want those matters
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,
just going to use what I get.” That’s a judgment
call and legal arguments going both ways can be made.
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.
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
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?
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.”
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.
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
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.
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
meet the definition of a trade secret. There could be different
wording to the definition of proprietary or confidential.
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?
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
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?
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
RivalScape: Is there anything else you think is
important to bring into this discussion, Richard?
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
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.
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
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!