Changes to Texas employment law affects trade secret lawsuits

On May 2, 2013, Texas adopted the Uniform Trade Secrets Act (TUTSA) which governs an employer’s right to prevent its current and former employees from giving away confidential business information to competitors.  The statute took effect on September 1, 2013.  This new law has already generated a lot of commentary from law firms on the internet.  See, for example, articles by the following authors:

Randy J. Bruchmiller and John L. Collins at Seyfarth Shaw, LLP

Ronald E. Manthey, Paulo B. McKeeby, and Erin E. Leu at Morgan Lewis

Tffany L. Cox, at Ogletree Deakins

What is most interesting about trade secret law is that this is one of the few areas of employment law that may enable an employer to sue a former employee (as well as her new employer).  Many other aspects of labor law focus on an employee’s right to fight unjust action by an employer — discrimination, retaliation, harassment, wrongful termination, failure to pay minimum wage, failure to pay overtime wages, etc.  However, trade secret law addresses the employer’s right to protect confidential business information, and with it the right of an employer to sue an employee who takes the company’s trade secrets to a competitor.  An employee of Company A, in the possession of Company A’s confidential customer list, for example, can be fired by Company A, go to work for competing Company B, and find herself being sued by Company A for using the customer list to help Company B.

The threat of such a suit may discourage highly skilled or knowledgeable employees from leaving a company, and may discourage competitors from hiring them.  The end result is that employees who were already reluctant to challenge abusive employers may be even more reluctant to do so now, as the employer now has an increased ability to interfere with the worker’s post-termination life.  Employees may also be less able than employers to afford a purely defensive position in a lawsuit; in the absence of a claim for damages, contingency fee arrangements are not practical.  Lawyers for the employee will resort to either hourly billing or flat rate billing, with the employee having no expected recovery to offset the cost.  Whether the TUTSA will balance the employer and employee’s interests in a fair way may only be clear after the new statute is applied to specific cases over the next few years.