When employees leave a company, there is a heightened risk of data theft, including trade secrets or confidential business information. The risk is present whether an employee’s departure is voluntary or not and could cause damage to business operations and legal or regulatory consequences like data breach notifications.
Common reasons a departing employee may take corporate data:
- To secure a new job or compete with a former employer— A departing employee may use a company’s trade secrets or intellectual property to gain an advantage when seeking a new job or competing with their previous employer.
- For personal financial gain— A former employee might sell the stolen data or use it to launch their own business.
- To seek revenge— Disgruntled employees may intentionally sabotage their former company’s operations by destroying data in retaliation for how they were treated during their departure.
- By accident— Not all data theft is intentional; departing employees may mistakenly believe the data belongs to them or fail to properly erase business-related data from their devices.
Safeguarding Trade Secrets
Trade secrets generally refer to information that has commercial value because it’s kept secret, such as formulas, methods, programs, etc. Under the Uniform Trade Secrets Act (UTSA), businesses must demonstrate reasonable measures to protect these secrets. Reasonable safeguards include:
- Restricting access to sensitive data.
- Requiring confidentiality agreements.
- Regular employee data security training.
- Monitoring data access or downloads.
Failure to protect trade secrets may result in losing legal protections if such trade secrets are stolen. Companies should consult with trusted IT and legal advisors to ensure they have adequate safeguards.
Data Breach Concerns
Departing employees may also take personal information, e.g., employee data, which could trigger data breach obligations. This includes not only social security numbers, but financial, health and biometric data as well as online credentials and government IDs. Unauthorized access to such information may require notification to affected individuals and authorities.
Regulatory and Contractual Implications
Companies may face additional obligations such as SEC regulations for publicly traded companies if data theft is material, industry-specific reporting for sectors like healthcare or energy, and contractual obligations to notify affected parties if confidential data is compromised. Ignoring these can lead to fines, lawsuits, and reputational harm.
Key Takeaways for Employers
A proactive, comprehensive strategy minimizes legal exposure and business risks.
Assess stolen data to determine legal obligations (personal info, trade secrets, etc.).
Evaluate legal and regulatory requirements for notifications and disclosures.
Leverage contractual protections to address the theft.
Strengthen safeguards: Implement data protection measures, employee training, and enhanced exit procedures.