Relationship Between Trade Secrets and Confidential Information

April 16, 2010 / By Robert Wood

In determining whether a non-compete agreement is enforceable, a Texas court will assess whether the consideration given by the employer justifies the non-compete agreement. Texas courts have held on multiple occasions that an employer’s providing of confidential information is sufficient consideration for a non-compete agreement.
Even without an enforceable non-compete agreement, a Texas employer has legal rights and remedies in the event one of its current or former employees is using or disclosing its “trade secrets.” Possible claims for such conduct include misappropriation of trade secrets and breach of fiduciary duty.

But what is the relationship between “confidential information,” which is sufficient consideration for a non-compete agreement, and “trade secrets,” which is a tort concept? Texas case law on this point is not clear.

For example, in a recent appellate case, the court, in examining whether the employer had an “interest worthy of protection” sufficient to justify the non-compete agreement that its former employee had signed, first noted that a “trade secret” may “consist of any formula, pattern, device, or compilation of information that is used in one’s business and which gives one an opportunity to obtain an advantage over competitors who do not know or use it.” The court noted that certain types of customer information, business plans, etc., could, under appropriate circumstances, constitute trade secrets.

However, the court then seemed to distinguish trade secrets from confidential information, stating that a “covenant not to compete is enforceable not only to protect trade secrets but also to protect proprietary and confidential information.” Thus, “trade secrets” and ”confidential information,” although often used interchangeably in cases dealing with non-compete agreements, do not seem to be synonymous. Employers may be able to bind their employees to non-compete agreements by providing information which, though confidential, does not rise to the level of a trade secret.

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About the Author

Robert Wood has been a Texas trial lawyer since 1993. During that time, he has represented small, mid-sized, and Fortune 100 companies in business and employment litigation matters all over Texas and the United States. He has also advised and represented hundreds of individuals in employment litigation matters. Read more about Robert Wood