Protecting Trade Secrets In A Union Environment

Thursday, February 1, 2007 - 00:00


In the 21st century, filled with world-wide competition and industrial espionage, corporations seek to zealously protect their trade secrets. But, where unionized employees or their representatives have access to corporate trade secrets, a serious loophole may develop in one's own backyard. This article explores the potential dangers and possible preventative measures.

Property Rights vs. Representation Rights

The inherent tension between corporate property rights and union representation rights is well documented. For example, in People v. Bush, 1 the N.Y. Court of Appeals held that an employer lawfully could prosecute strikers for criminal trespass, but noted: "The organizational and other rights guaranteed to employees under section 7 of the [National Labor Relations Act] must be balanced against the need to preserve private property rights. 'Accommodation between the two must be obtained with as little destruction of one as is consistent with the maintenance of the other.'"2

Applying this balance to the protection of trade secrets poses serious challenges. On the one hand, trade secrets, created under state law, indisputably are corporate property. On the other, unions enjoy the statutory right, created by the NLRA, to represent workers in their bargaining units. Conflict occurs whenever unions, exercising their representational rights, demand access to trade secrets or confidential business information.

Lawful Means

Under the NLRA, a union may request and obtain information that is relevant and necessary to monitor the employer's compliance with the collective bargaining agreement. If the information sought is confidential, the employer may condition its production upon negotiation of an appropriate confidentiality agreement. Should the parties disagree, the NLRB has jurisdiction to balance the legitimate interests of management and labor.3

Unlawful Acts

To protect employees' livelihoods, unions should be proactive in helping employers maintain the confidentiality of trade secrets. On occasion, however, an overzealous employee or union may end run the lawful process, e.g. by raiding company files or photographing sensitive manufacturing equipment in contravention of plant rules.

If the employer is able to identify the offending employee, the answer is relatively straight forward - the company may lawfully discharge or discipline him or her and demand return of the property.4 Moreover, the NLRB specifically has rejected the contention that an employee is insulated because he/she "innocently" obtained the confidential information.5

But, what if trade secrets are anonymously passed to a non-employee union representative? Or the union itself misappropriates the information? Unfortunately, the answer becomes much more complicated.

The company may commence a state court action for injunctive relief and compensatory damages, setting forth causes of action for misappropriation of trade secrets, return of chattel and/or conversion. But, the union, in addition to denying that the information is confidential, may raise several arguments premised upon federal labor law.

The union may assert that it, rather than the employer, has superior possessory right to the property, on the ground that the material relates to a mandatory subject of bargaining, such as safety. Alternatively, the union may seek to remove the case to federal court, asserting that the state court action is pre-empted by the NLRA or Section 301 of the Labor Management Reporting Act.6 Such tactics, even if eventually rejected by the courts, can delay state court injunctive proceedings for months.

Prophylactic Steps

While there is no "silver bullet," the following steps may help close the union "loophole" in trade secret protection:

Educate management, supervision and all employees about protecting trade secrets, and the dire consequence of unauthorized disclosure.

As a condition of employment, require every employee to execute a confidentiality agreement, protecting trade secrets.

Promulgate a rule barring disclosure of trade secrets and regularly review the rule with all employees.

Ensure confidentiality agreements with customers, licensees and co-venturers are kept current (many contain sunset dates).

Prohibit anyone access to the facility, either office or production areas, without an executed confidentiality agreement on file and uniformly apply it to non-employee union representatives and agents.

1 39 N.Y.2d 529 (1976).

2 39 N.Y.2d at 537 (quoting N.L.R.B. v. Babcock & Wilcox Co., 351 U.S. 105, 112 (1956)).

3 E.g. Detroit Edison Co. v. N.L.R.B., 440 U.S. 301 (1979); Minnesota Mining and Manufacturing Co., 261 NLRB 27 (1982)

4 Altoona Hospital , 270 NLRB 1179, 1180 (1984); Beckley Appalachian Regional Hospital , 318 NLRB 907 (1995).

5 Int'l Bus. Mach. Corp. , 265 NLRB 638, n. 4 (1982) ("[w]e see no reason to adopt what is essentially the 'finders keepers' rationale"). Accord L.G. Williams Oil Co., Inc., 285 NLRB 418 (1987).

6 See, e.g., E.I. du Pont de Nemours and Company v. United Steel, 2005 WL 3059391 (W.D.N.Y. 2005) (rejecting federal law pre-emption defenses and remanding to state court for injunction hearing).

James D. Donathen, a Partner with Phillips Lytle LLP, can be reached at (716) 847-5476 or Laura H. Huggett is Corporate Counsel at E. I. du Pont de Nemours & Company. She can be reached at (302) 773-3421.