photo of man looking out over bay in article titled People are not trade secrets by Heather Bussing published on May 7, 2015. Photo credit Jordan McQueen via unsplash

People are not trade secrets. And in California, at least, trying to stop someone from taking a new job can be really expensive.

Last week, the California Courts explained why recruiters and tech companies need to quit claiming that people are trade secrets. If you want to read the opinion, it’s here in Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc. There are words like “dross,” “specious,” and “de facto,” if you’re into that kind of language.

What the Case Was About

A third-party recruiter for Maxim was searching for candidates with touch screen experience and found a bunch of them on LinkedIn. Several happened to work for Maxim’s competitor, Cypress. Big surprise, right?

Maxim successfully hired away at least one senior employee and tried to hire more Cypress employees. So Cypress sued claiming that its employees had years of secret technical knowledge that amounted to “trade secrets.” It also claimed that Maxim could not hire the employees because they were bound by its Confidentiality Agreement that prevented Cypress employees from using anything they ever learned anywhere else.

Cypress also relied on it’s “Code of Business Conduct” that said the names, experience, and skills of its employees were proprietary information. Of course, the employees all had LinkedIn profiles that were public, so that didn’t go over too well.

What Happened

Cypress lost because non-compete agreements are illegal and against public policy in California. Companies in California cannot prevent their employees from working for someone else, even a direct competitor. We have free range employees here. Local, artisan, hand-crafted in small batches, with plaid shirts and beards optional.

So when Cypress was forced to actually articulate the trade secret they claimed was misappropriated by Maxim, well, they couldn’t. That’s because people are not trade secrets, even if the people know a bunch of confidential or secret information.

Ultimately, Cypress dropped its complaint. Then Maxim claimed costs and attorneys’ fees. (The trade secret law in California allows the prevailing party to sometimes recover attorneys’ fees. Usually each side has to pay its own lawyers, unless there is a contract or a statute that allows recovery of legal fees.)

The court upheld the cost award of about $1,000. No biggie. But Maxim also recovered almost $181,000 in attorneys’ fees because Cypress filed suit in bad faith to try to stop its employees from working for a competitor.

It’s worth noting that the $181K was for attorneys’ fees before the case ever got off the ground. Cypress dismissed the case at the pleading stage. There weren’t any depositions, or extensive discovery, no big trial. This was what it cost for the scratch and sniff.

And that is exactly why companies try to enforce non-competes and other restrictive employment policies and “agreements,” even when they are not valid or don’t apply. It’s because the cost of defending the lawsuit will usually deter the new employer from hiring the person, which is the objective anyway.

But people are not trade secrets. And in California, at least, trying to stop someone from taking a new job can be really expensive.

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