Effects of the Trade Secrets Act on employment law practice

The Trade Secrets Act aims to strengthen the legal position of companies with respect to the protection against breaches of trade secrets. To enjoy this protection, however, companies must meet new obligations. The effective use of design mechanisms in compliance with employment law is a key step on the way to transposing the new requirements.

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On March 21, 2019, the Bundestag adopted a draft Trade Secrets Act (19/4724).

Section 2(1) Trade Secrets Act:

“For the purposes of this Act, a trade secret means information which

a) is not, as a body or in the precise configuration and assembly of its components, generally known or readily accessible to persons within the circles that normally deal with the kind of information in question and therefore has commercial value; and
b) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”

By adopting the law, European Directive (EU) 2016/943 on the protection of trade secrets will be transposed into national law with a delay of almost one year. The law is intended to increase protection against breaches of trade secrets, which has been regulated inconsistently in Germany to date. Appropriate rules were included in the penal provisions of Sections 17-19 Act against Unfair Competition and in the general tort law of the Civil Code (Sections 823, 826 Civil Code) but were unable to meet the European requirements.

The key new aspect of the Trade Secrets Act concerns the above-mentioned legal definition of trade secrets. A core element of this legal definition, and thus also a prerequisite for comprehensive protection under the new law, is the requirement to take “reasonable steps to keep” the information “secret.” According to the previous understanding of the law, it was sufficient that there was a subjective intent to maintain company-related information secret which had manifested itself in objective terms.

This is changed by the new law. To be covered by the Trade Secrets Act, companies must now take reasonable steps to keep the information secret and document them. The following rule of thumb applies: the more important information is for the company, the stricter the requirements are for the steps to be taken to keep it secret. In the event of a dispute, the company is burdened with the obligation to present and prove the reasonable steps to keep the information secret.

The unauthorized disclosure of trade secrets represents a central source of risk for the loss of know-how. In more than 70% of the cases, the company’s own employees are involved, whether consciously or unconsciously. To enjoy protection under the Trade Secrets Act and be able to assert claims for injunctive relief or damages in the event of unlawful use, companies must take action and take appropriate steps to keep the information secret. A three-stage procedure is recommended in this respect. The first step is to identify the trade secrets held by the company. The information should then be categorized into levels of secrecy. This can be done, for example, according to the following classification: existential know-how - central know-how - other know-how relevant to competition. Finally, the development and implementation of appropriate secrecy measures for the respective level of secrecy follows.

In many articles on the effects of the Trade Secrets Act, attention is increasingly focused on the organizational and, primarily, technical measures to ensure reasonable protection of secrets. These include, for example, the classification of employees according to certain levels of secrecy, the implementation of access restrictions, and the encryption of data carriers and communications. The confidentiality duty of employees, which can be safeguarded by instruments under employment law, is also of elementary importance for the protection of operational know-how, however. The key factor here is whether an employment relationship still exists or whether it has already ended.

In principle, employees are bound to secrecy even without a contractual agreement during the existing employment relationship. In practice, however, especially in view of the new statutory provisions, it is recommended to expressly include rules relating to the duty of confidentiality. For this purpose, a confidentiality clause may be included in the employment contract or an existing clause may be adapted. When formulating the contractual provision, it must be borne in mind that it must be sufficiently defined relating to the specific information. “Catch-all clauses,” according to which all information disclosed to employees is to be considered business secrets and treated confidentially, are usually ineffective.

The conclusion of non-disclosure agreements may also strengthen employees’ awareness of the existence and scope of the duty. Non-disclosure agreements may particularly also be concluded for the period after termination of the employment relationship. It is important in this context not to exceed the limits of any post-contractual non-competition clauses. This is usually the case where employees are prohibited from exploiting the knowledge acquired within the scope of the employment relationship. In contrast to post-contractual non-disclosure agreements, post-contractual non-competition clauses are only effective if they contain an agreement on compensation. To avoid the problem of delimitation and the risk of the agreement becoming ineffective, extensive post-contractual non-disclosure agreements should also meet the requirements with respect to compensation for post-contractual non-competition clauses.

In addition, it may be useful to inform employees about the legal situation in the form of training courses, thus making them more sensitive to the topic of know-how protection. If the training is combined with an instruction to comply with requirements under employment law and to implement possible employer guidelines at the workplace, it is not subject to co-determination by the Works Council as information within the meaning of Section 81 I Works Constitution Act.