Misuse of Trade Secrets by Independent Contractors Tougher to Deal With

The pitfalls of classifying workers as independent contractors should be evident to employers at this point. Those who did not previously recognize this important point should consider a recent superior court decision indicating that it may be much harder to protect important trade information from improper use by independent contractors than by employees.

That’s at least one interpretation of the message delivered by the judgment against a company that sued its former contractor for stealing trade secrets. Despite concluding that the company properly identified stolen material that, if used by others in the marketplace, could damage its interests, a superior court judge granted summary judgment to the former contractor. In doing so, the court apparently discounted employee testimony to the effect that ‘all knew’ customer lists were confidential and should not be removed from the company’s offices. More important, in the court’s view, was the company’s failure to require the contractor to sign a confidentiality agreement before trade secrets were disclosed to him.

The decision does not seem to suggest that contractors can never be responsible for misusing trade secrets. In fact, Massachusetts law provides remedies against doing so under some circumstances, and a strong policy regarding confidential information and better communication with the contractor might have led to a different result in C.R.T.R. v. Lao. Still, protecting secrets against misuse by independent contractors is tougher than protecting them against employees. As all should know by now, workers should always be treated as employees if there exists any doubt as to their status under the state’s independent contractor law. For the few who may truly be contractors, it’s imperative to ensure a written confidentiality agreement is signed.