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The $168 Million Hiring Mistake: Trade Secret Risks When Hiring Competitor Employees

Writer: Todd B. Nurick
Todd B. Nurick
Jun 17
7 min read

Business leaders reviewing trade secret risks before hiring employees from a competitor
Business leaders reviewing trade secret risks before hiring employees from a competitor

Hiring people who already know the industry can save a company years of trial and error. It can also create a serious legal problem if nobody draws a clear line between an employee’s legitimate experience and confidential information that belongs to someone else.


The Supreme Court of the United States highlighted that risk this week when it declined to review a $168 million trade-secret judgment against Tata Consultancy Services, (TCS). The denial didn’t decide the merits or endorse every part of the lower court’s reasoning. It left the judgment and the Fifth Circuit’s decision in place.


The underlying case arose after TCS hired approximately 2,200 employees from Transamerica, a customer that used life-insurance software licensed from Computer Sciences Corporation, (CSC), now part of DXC Technology. CSC alleged that TCS used the transferred employees’ access to CSC’s software and their knowledge of proprietary information to help develop a competing platform. TCS denied misappropriation, maintained that the information wasn’t secret, and argued that it had accessed the software lawfully.


After trial, the district court awarded approximately $56 million in compensatory damages based on unjust enrichment and approximately $112 million in exemplary damages. The Fifth Circuit affirmed those awards and the underlying finding of willful and malicious misappropriation, while directing the district court to narrow part of the injunction.


Trade Secret Risks When Hiring Competitor Employees often begin long before anyone files a claim. They start during recruiting, onboarding, document transfer, systems access, product development, and the informal conversations managers have with experienced new hires about how their former companies operated.


Todd Nurick of Nurick Law Group, LLC is a Pennsylvania and New York business attorney with approximately 30 years of civilian business law and litigation experience and a former Army officer. As Fractional General Counsel and Outside General Counsel, he helps businesses address contracts, employment issues, corporate governance, transactions, intellectual property, operational risk, and the full range of legal concerns that an internal legal department would ordinarily handle.


Trade Secret Risks When Hiring Competitor Employees: what the $168 million case actually teaches

The headline number is striking, but the operational details are more useful for business owners. According to the Fifth Circuit, TCS had internal intellectual-property procedures requiring employees to secure lawful access to third-party intellectual property before using it. The court nevertheless concluded that employees didn’t follow those procedures when they used CSC information. The opinion also discusses evidence that TCS knew CSC objected to the access and use but continued forward.


That gap between policy and practice deserves attention. A company can have a strong handbook, confidentiality policy, and code of conduct and still face substantial exposure if managers don’t follow them when a valuable new team arrives.


The case also illustrates the reach of unjust-enrichment damages. CSC’s compensatory award didn’t depend on proving an equivalent amount of lost sales. The district court calculated the benefit TCS allegedly received through research and development costs it avoided by using the protected information. The Fifth Circuit upheld that measure on the record before it.


Under the Defend Trade Secrets Act, (DTSA), courts may award actual-loss damages, unjust-enrichment damages not otherwise captured by actual loss, and up to twice the compensatory award when the misappropriation was willful and malicious. The statute also allows injunctive relief and, in appropriate circumstances, attorney’s fees.


Trade Secret Risks When Hiring Competitor Employees don’t make experienced hiring unlawful

Companies remain free to hire talented people from competitors, customers, vendors, and other businesses. Employees can also use their general knowledge, professional abilities, and accumulated experience in a new position.


Trade-secret law doesn’t give a former employer ownership over everything an employee knows. Federal law expressly distinguishes improper acquisition from lawful methods such as independent development and reverse engineering.


The problem starts when the new employer receives, requests, encourages, accesses, or uses information that the employee had a duty to keep confidential. That may include source code, technical manuals, pricing models, customer-specific data, designs, product roadmaps, formulas, internal processes, or compilations that qualify for protection.


The DTSA defines a trade secret broadly, but the owner must have taken reasonable measures to protect it, and the information must derive economic value from not being generally known or readily ascertainable through lawful means. Pennsylvania’s Uniform Trade Secrets Act follows a similar structure.


The warning signs companies should catch before the first day of work

Most problems don’t begin with an executive announcing an intent to steal a competitor’s technology. They begin with smaller decisions that nobody stops to question. A newly hired employee may arrive with files saved to a personal drive, copies of pricing documents, screenshots, customer lists, operating manuals, or templates from the prior employer. A manager may ask the person to explain exactly how a competitor built a product, priced a service, or solved a technical problem. An entire team may transfer at once and continue using familiar documents or workflows without asking who owns them.

The risk rises when:

  • the company hires a team from the same competitor, customer, or vendor;

  • new employees immediately access or upload documents from their former workplace;

  • leadership asks employees to recreate a competing product unusually quickly;

  • managers tell employees to use “what they already know” without defining the boundary;

  • the company has no written onboarding certification concerning third-party confidential information;

  • product-development records don’t show independent creation;

  • counsel isn’t involved until the former employer sends a demand letter.


A company doesn’t need to assume every experienced hire presents a problem. It does need a process that catches unusual access, suspicious files, and requests that cross the line.


Trade Secret Risks When Hiring Competitor Employees require more than a handbook paragraph

A practical onboarding process should tell the employee, in plain language, that the company wants the person’s skill and experience but doesn’t want confidential information, documents, code, devices, or data belonging to a former employer.

That process can include:

  • reviewing any continuing confidentiality, non-solicitation, invention-assignment, or restrictive-covenant obligations;

  • requiring the employee to confirm that no former-employer files or devices have been brought into the company;

  • directing the employee not to upload, forward, copy, or recreate confidential materials;

  • telling managers not to request competitor documents or protected internal information;

  • creating an escalation process when the employee isn’t sure whether something may be used;

  • limiting early systems access when the hire presents unusual risk;

  • preserving records showing how the company independently developed products, processes, pricing, or technology;

  • documenting legal review of coordinated team hires and customer/vendor transitions.


The same review should cover consultants and independent contractors. For purposes of the DTSA’s whistleblower-immunity notice provision, the statute’s definition of employee includes contractors and consultants.


Protecting your company’s own trade secrets is part of the same job

A company that demands discipline when hiring from competitors should apply the same discipline to its own information.

Federal and Pennsylvania law both require the owner to take reasonable steps to maintain secrecy. If a business treats important information casually, shares it without restrictions, gives access to anyone who asks, or fails to identify what it considers confidential, it may have difficulty proving later that the information qualified as a trade secret.

Reasonable measures will vary by company and type of information, but they often include:

  • confidentiality agreements;

  • role-based access controls;

  • secure document storage;

  • clear labeling where appropriate;

  • limits on downloading or forwarding sensitive files;

  • employee training;

  • exit interviews and return-of-property certifications;

  • prompt termination of systems access;

  • investigation of unusual downloads before or after departure.


Companies should also confirm that agreements governing confidential information contain the DTSA’s required notice concerning whistleblower immunity. An employer that fails to provide the notice may lose access to exemplary damages and attorney’s fees in a DTSA action against the employee covered by the agreement.


Why Fractional General Counsel and Outside General Counsel should get involved early

Hiring decisions usually move quickly. The business identifies someone with valuable experience, wants the person in the role, and focuses on compensation, start date, customer transition, and productivity. Legal review shouldn’t become an obstacle, but it should identify the risks before the company inherits them.


Fractional General Counsel and Outside General Counsel can coordinate the legal function across recruiting, Human Resources, product development, information technology, contracts, management, and executive decision-making. The work may include reviewing the new hire’s obligations, refining offer and confidentiality documents, training managers, assessing files or data the employee already possesses, and preserving evidence of independent development.

That’s ordinary general-counsel work. It protects the company’s ability to hire strong people while reducing the chance that their former employer’s information becomes part of the new business.


Conclusion

The $168 million TCS judgment doesn’t mean companies should avoid hiring experienced employees from competitors, customers, or vendors. It shows what can happen when a business gains access to protected information, ignores warning signs, or fails to enforce its own procedures.


Trade Secret Risks When Hiring Competitor Employees can’t be managed through a generic confidentiality clause alone. Companies need a process that covers recruiting, onboarding, manager conduct, systems access, independent development, and the departure of their own employees.


If your company is hiring an individual or team from a competitor, customer, or vendor, Todd Nurick and Nurick Law Group, LLC can help structure the onboarding process, review existing obligations, strengthen confidentiality protections, and address the broader legal work through Fractional General Counsel and Outside General Counsel support.


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Disclaimer: This article is for informational purposes only and isn't legal advice. Reading it doesn't create an attorney-client relationship. Todd Nurick and Nurick Law Group aren't your attorneys unless and until there is a fully executed written fee agreement with Todd Nurick or Nurick Law Group.

 

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