What Constitutes Confidential Information in Texas?

April 16, 2010 / By Robert Wood

 Texas courts have long held that an employer’s providing of confidential information can constitute sufficient consideration for a non-compete agreement.  But it can be difficult to apply this widely accepted premise, as was demonstrated in a recent case.

In the case, an insurance broker signed an employment agreement in which he acknowledged that he would receive confidential information:

This information (hereinafter referred to as “Confidential Information”) includes, but is not limited to, data relating to AJG and the Corporation’s unique marketing and servicing programs, procedures and techniques; the criteria and formulae used by AJG and the Corporation in pricing its insurance and employee benefits products and claims management, loss control and information management services; the structure and pricing of special insurances packages that AJG and the Corporation have negotiated with various underwriters; lists of prospects compiled by AJG and the Corporation’s management and research staff; the identity, authority and responsibilities of key contacts at AJG and the Corporation accounts, including accounts of the Acquired Business; the composition and organization of accounts’ businesses; the peculiar risks inherent in their operations, highly sensitive details concerning the structure, conditions and extent of their existing insurance coverages; policy expiration dates; premium amounts; commission rates; risk management service arrangements; loss histories; and other data showing the particularized insurance requirements and preferences of the accounts. The Executive recognizes that this Confidential Information constitutes a valuable property of the Corporation, developed over a long period of time and at substantial expense.

As can be seen from this provision, the broker was to receive various types of confidential information: confidential client contact information, pricing information, customer preference information, information concerning the customers’ policies, etc.  The broker contended that much of this information was not confidential, because it could be obtained from public sources.

The company disagreed, and argued that its confidential information (a) took years to acquire; (b) was only shared with the company’s employees and agents on a “need to know” basis; (c) was not “readily ascertainable by competitors”; and (d) gave the company a “valuable competitive advantage in the insurance brokerage industry.”  The company also contended that it spent substantial resources developing and acquiring the information, and that it took reasonable precautions to prevent the disclosure of the confidential information.

The court agreed with the company.  In doing so, it found as persuasive the fact that the company had spent substantial time and resources developing and acquiring the information, it had taken reasonable precautions to prevent disclosure of the information to third parties, the information was not readily available to competitors, and the information gave the company a valuable competitive advantage in the industry.  Based upon these factors, the court held that the confidential information was sufficient to make the non-solicitation agreement enforceable.

Interestingly, the dissenting opinion disagreed that the information was sufficiently confidential.  The dissenting judge explained:

Just because it took GHIS years to acquire and compile information about its customers and it shared this information with employees and agents of GHIS only on a “need to know basis” does not make the information “protectable.” Nor does the fact that the compilation of the information somehow gives GHIS a competitive advantage make the information “protectable.”

The critically important fact remains that GHIS has not demonstrated that the identity of its customers and the information about its customers cannot readily obtained by others outside of GHIS. Nor has GHIS demonstrated that the information about its customers cannot be ascertained simply by inquiry addressed to the customers themselves.

From the majority and dissenting opinions in this case, we can see that different judges can look at the same set of facts and reach completely different conclusions.  For that reason, it is difficult to predict with certainty how a particular dispute involving a non-compete agreement will be decided in court.

 www.mylawteam.com

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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