Employee departures are a routine part of doing business. For government contractors, however, the departure of a key employee can raise issues that go well beyond ordinary employment law concerns.
A departing employee may possess proprietary technical information, pricing data, proposal materials, customer information, source code, business strategies, or information concerning a government program. If that employee moves to a competitor, or to a company pursuing the same federal opportunity, the contractor may have legitimate concerns about protecting its confidential information.
At the same time, aggressive efforts to restrict a former employee can create a different set of problems. Depending on the circumstances, a contractor’s response may implicate organizational conflicts of interest, contractual restrictions, procurement integrity, or even the contractor’s ability to compete for future government work.
The key is to separate two questions that are sometimes conflated: What information is the company legally entitled to protect, and what restrictions, if any, can appropriately be imposed on the former employee or the employee’s new employer? A disciplined departure process can address both.
Start with the Information, Not the Employee
The first step should be identifying what information is actually at issue. Federal law defines a trade secret broadly to include certain financial, business, scientific, technical, economic, and engineering information, provided the owner takes reasonable measures to keep the information secret and the information derives independent economic value from not being generally known or readily ascertainable through proper means (18 U.S.C. § 1839).
For government contractors, potentially protected information may include proprietary technical data and designs, source code and software architecture, manufacturing and engineering processes, internal cost and pricing information, bid and proposal strategies, customer and supplier information, business development plans, proprietary methodologies, and internal tools.
Not all confidential information is necessarily a trade secret, and not everything an employee learns during employment belongs to the employer. That distinction matters. A contractor that broadly characterizes everything an employee encountered as a trade secret may undermine its credibility when it later seeks emergency relief or must explain its position to a government customer. The better practice is to identify specific categories of information and the measures the company has taken to protect them.
Government Contracts Add Another Layer
Government contractors must also consider whether the departing employee had access to information that implicates federal procurement rules. The organizational conflict of interest rules in the Federal Acquisition Regulation (FAR) are particularly important when contractor personnel have access to nonpublic information or perform functions that could affect a future procurement. FAR Subpart 9.5 is designed to identify, avoid, neutralize, or mitigate significant potential organizational conflicts of interest. The FAR identifies preventing conflicting roles and preventing unfair competitive advantage as two underlying principles.
For example, consider an employee who helped a contractor perform technical work for an agency and subsequently joins a company competing for a related procurement. The issue may not simply be whether the employee possesses the former employer’s trade secrets. The government may also need to consider whether the employee’s knowledge creates an unfair competitive advantage or an organizational conflict of interest under the applicable solicitation, contract, agency supplement, or other requirements.
That means a contractor should ask a broader question during an employee departure: Did this employee have access to information or perform functions that could affect a current or future federal procurement? If the answer is yes, counsel should review the relevant contract and solicitation provisions before the company takes action.
Protecting Trade Secrets Does Not Automatically Mean Preventing Employment
Federal law provides remedies for trade secret misappropriation, including injunctive relief in appropriate circumstances. Under the Defend Trade Secrets Act (DTSA), a trade secret owner may bring a civil action when the statutory requirements are satisfied. A court may issue an injunction to prevent actual or threatened misappropriation, but the statute specifically provides that an injunction generally may not prevent a person from entering into an employment relationship. Conditions on employment must be based on evidence of threatened misappropriation rather than merely on the information the person knows (18 U.S.C. § 1836).
That distinction is important. A contractor may have a legitimate interest in preventing a former employee from taking confidential source code, proprietary pricing information, or other protected material. That does not necessarily mean the contractor can, or should, seek to prevent the employee from working for a competitor altogether.
It is also worth noting that the federal DTSA is not the only potential source of relief. Most states have enacted their own trade secret statutes, generally based on the Uniform Trade Secrets Act, and those state law regimes may offer parallel or additional remedies depending on the jurisdiction. This alert focuses on the federal framework, but state law should also be considered on a case-by-case basis.
The appropriate response may instead involve narrower measures. The contractor may recover company devices and records, revoke system access, require certification that company information has been returned, preserve relevant evidence, remind the employee of continuing confidentiality obligations, identify particular information that cannot be disclosed or used, establish information barriers at the new employer where appropriate, or seek targeted judicial relief when there is evidence of actual or threatened misappropriation. The precise remedy will depend on the governing agreements, applicable state law, the facts surrounding the departure, and the nature of the information involved.
Be Especially Careful with Government Information
A government contractor’s information protection analysis should also distinguish the contractor’s own proprietary information from information belonging to the government or another contractor. That distinction can become critical when an employee worked on multiple government programs or had access to nonpublic information obtained through contract performance.
FAR 9.505-4, for example, addresses circumstances in which a contractor obtains proprietary information from another company in performing advisory and assistance services for the government. The rule contemplates restrictions designed to prevent unauthorized use or disclosure and to prevent an unfair competitive advantage.
There also may be contract-specific requirements concerning the handling of nonpublic information. FAR 3.1103, for example, requires certain contractors whose employees perform acquisition functions closely associated with inherently governmental functions to establish procedures addressing personal conflicts of interest, use of nonpublic information, and nondisclosure obligations.
Accordingly, when a departing employee has worked on sensitive federal procurements, the company should determine what information belonged to the contractor, what information belonged to the government, what information belonged to another contractor, what information was subject to a contractual nondisclosure or use restriction, what information was available to the public, and what information could affect a current or future procurement. Those questions should usually be answered before sending a broad demand letter to the employee or the new employer.
Review the Contract Before Taking Action
Government contractors sometimes focus so heavily on the employee’s employment agreement that they overlook the underlying federal contract. That can be a mistake. Before taking action, counsel should review the applicable prime contract, subcontracts, solicitations and amendments, agency-specific supplements, organizational conflict of interest provisions, organizational conflict mitigation plans, nondisclosure agreements, data rights provisions, restrictions concerning proprietary or source selection information, and any special contractual restrictions applicable to the employee’s role.
The FAR recognizes that organizational conflict of interest restrictions can arise from the particular circumstances of an acquisition and that significant potential conflicts may be addressed through solicitation provisions and contract clauses imposing appropriate restraints on future activities. In other words, the relevant question is not simply whether the company can enforce a confidentiality agreement. It may also be what the contract requires the contractor to do with this information and this personnel transition.
Avoid Creating a Procurement Problem While Solving a Trade Secret Problem
One of the most important practical considerations is proportionality. Suppose a senior engineer leaves a contractor and joins a competitor. The engineer worked on a government program and had access to proprietary design information. The former employer may be tempted to demand that the competitor remove the engineer from the entire program or even terminate the engineer’s employment. That approach may be unnecessary if the actual concern is narrower.
A more targeted response could involve identifying the specific information at issue, documenting the employee’s access, reminding the employee of continuing obligations, and determining whether the new employer can implement appropriate information barriers or personnel restrictions.
Document the Departure Process
Good documentation can be as important as the substantive protections themselves. At the time of departure, contractors should document the employee’s roles and responsibilities, the government contracts and programs on which the employee worked, the categories of confidential information to which the employee had access, the company policies and agreements governing that information, company-issued devices and accounts, the return of documents and other company property, the termination of system and network access, any representations or certifications obtained from the employee, any known destination employer or competing program where legally appropriate, and the basis for any additional restrictions or mitigation measures.
Documentation should be factual and narrowly tailored. It should not characterize an employee’s new employment as improper merely because the employee joined a competitor.
What If There Is Evidence of Misappropriation?
The analysis changes when there is evidence that confidential information has actually been taken, copied, transmitted, or used improperly. Examples might include a departing employee downloading large quantities of restricted files shortly before departure, forwarding proprietary documents to a personal email account, uploading company files to an unauthorized cloud service, copying source code or technical data onto a personal device, taking proposal or pricing materials to a competitor, or attempting to access systems after employment has ended. Those circumstances warrant prompt investigation.
The DTSA permits a trade secret owner to seek civil relief in federal court, including injunctive relief and, in appropriate cases, damages. The statute also provides for extraordinary ex parte seizure relief under narrowly defined circumstances.
Because emergency trade secret litigation can itself expose sensitive information and affect government contract relationships, contractors should coordinate legal, technical, employment, and government contracting personnel before taking action.
Conclusion
Employee departures are inevitable. Trade secret disputes do not have to be. For government contractors, the most effective approach is usually to treat an employee departure as both an information security event and a government contract compliance event. Protecting proprietary information requires reasonable secrecy measures and a fact-specific assessment of what information is actually protected. At the same time, contractors must account for the possibility that employee mobility, access to nonpublic information, and work on related procurements could create organizational conflict of interest or other procurement concerns.
The goal should not be to prevent every employee from joining a competitor. It should be to identify legitimate risks, preserve evidence, protect information, comply with contractual obligations, and use proportionate measures that address the actual problem. That approach can protect the contractor’s intellectual property without unnecessarily turning a personnel transition into a government procurement dispute.
If you have any questions about the foregoing or require assistance, please do not hesitate to contact Aron Beezley or Nathaniel Greeson.