Many businesses have customer lists that they consider their own private property. It is common, however, for sales representatives and other employees to regard customer lists as theirs too, something they can take to a new employer.
Employment agreements, confidentiality agreements, non-competes, and non-solicitation agreements can all be used to eliminate confusion over whether a customer list is transferable or not.
In the absence of clear contractual protections, however, case law and state “trade secret” statutes may decide whether a list is the exclusive property of a business. If the list is a “trade secret,” a business owner may have an easier time protecting it and obtaining damages for its use by ex-employees and competitors. 47 states have adopted some version of the Uniform Trade Secrets Act, which provides for penalties and remedies for the misappropriation of trade secrets.
Generally, a list receives “trade secret” protection if, first, it contains information not readily ascertainable from public sources. Merely listing customers and general contact information is usually not enough to elevate the information to trade secret status. Second, owners must usually take some measures to keep the information confidential.
The following are elements which, when present, can lead to a customer list being deemed a trade secret.
A recent case involving former employees of an insurance company shows how these factors can influence a court. In that case, the customer list contained more than just customer names, birthdates and drivers’ license numbers. It also contained laboriously compiled information about the amounts and types of insurance each customer had bought, the location of insured property, the personal history of policyholders, policy termination and renewal dates, and other potentially valuable details. The list conferred a powerful, competitive advantage and the court deemed it a “trade secret.”
Meeting the criteria spelled out in that case and in the suggestions above does not guarantee that a customer list will be deemed a protected trade secret. It could, nonetheless, increase the odds.