Anyone involved in the auto industry knows that employees tend to relocate within the industry frequently. This is particularly true in high demand positions such as experienced managers as well as specialized technicians such as diesel technicians and transmission technicians. This begs an interesting question: How does a dealership protect its trade secrets including: unique financing techniques, sales training and its customer and employee information?
Many states have statutes which provide some protection for trade secrets. The statutes will generally state what information is protected and what remedies you might have if someone is using your trade secrets without your permission. However, if a former employee is poaching customers or employees, you would probably have to litigate to determine first if that information falls under the statute and then whether or not the way the former employee is using the information is a violation of the law. This could be a costly proposition as attorney’s fees spent to vindicate your rights may not be recouped. Additionally, unless the Court enters an injunction or some other type of equitable relief, the offending party might be able to continue using your trade secrets until the case is resolved.
Another potential way to protect this information is by having an employee handbook which explains what information is proprietary and may not be shared with others. Many dealerships already have some form of employee handbook covering a variety of issues including sexual harassment policies, sick days, vacation policies and a variety of other employment related issues. However, some courts have ruled that an employee can not be found liable solely for a breach of rules contained in a handbook. The amount of protection that a handbook will provide will vary depending on the status of the law in your state. As such, an employee handbook can be useful, but only in conjunction with some other type of protection.
Certainly, one way to protect this information is to limit the amount of people who have access to it. This is particularly useful in the context of customer and employee information. However, this is not always feasible, as much of this information may be contained in invoices, repair orders or other dealer’s documents which must be handled and utilized by many parties in your organization.
This brings us to perhaps the most useful method of protecting your trade secrets: using a do not compete, non-disclosure agreement, or by adding language to employment contracts. The type of contract you may utilize as well as the scope of the protection and language you can use will vary greatly from state to state. Many states disfavor these types of contracts, so it is vital to have an attorney carefully review any language in these agreements in order to make sure it is enforceable.
While it is possible that you may still have to litigate, since you have drafted the contract, you can define the terms to the extent allowable under the law of your state. Most states permit you to add provisions that will allow you to recover attorney’s fees in the event you are successful in litigation.
A dealer’s client base, employees and unique business practices can be the difference between success and failure in a very competitive industry. If you have no protection for this information, every time an employee takes a new job you may be losing your competitive advantage. As I have stated regularly in these articles, you may not want to pay an attorney to draft or review these documents, but if you don’t want to see your competitors utilizing your information and techniques free of charge, it is a worthwhile investment.
