The Letter of the Law: January 2012

IN THIS ISSUE:

BUSINESS: Protecting Customer & Client Lists

FAMILY: Division of a Thrift Savings Plan in Divorce

Protecting Customer & Client Lists

When preparing Employee Handbooks, we frequently are asked by clients, “What can I do to protect my client and customer lists from being taken by departing employees?” Client and customer lists are often a company’s most important asset. Legally protecting that asset in California can be difficult.

We advise that the best way to protect your client information is to treat it the same way that you would your proprietary products, designs, and methods: as a trade secret. California courts historically have rarely upheld covenants not to compete and non-solicitation agreements as enforceable, even when negotiated in an employment contract. So, if you make reference to the confidentiality of your client lists in a covenant not to compete or non-solicitation agreement, you run the likelihood of that proprietary information not being protected. Trade secrets however, have been given much more enforcement protection by California courts. It therefore makes better sense to make reference to the confidentiality of your client lists in your trade secret or confidential information provisions.

In California, two conditions must be satisfied for information, including customer and client lists, to enjoy trade secret protection. First, the employer must routinely make efforts to maintain the secrecy of the client/customer information, and second, the information must derive independent economic value from not being generally known to the public. California Uniform Trade Secrets Act and Civil Code §§ 3426.1 through 3426.11.

What must a company do to make efforts to maintain the secrecy of client and customer lists? Make certain that your internal policies make it unequivocally clear that this information is secret and is not to be disseminated, and communicate that policy in writing regularly to your employees.

To satisfy the second requirement, showing that the information has independent economic value from not being publicly known, is inherently easy to demonstrate. Client and customer lists have a natural monetary value, especially if considerable efforts were made by the company to compile the information. Clearly if your client list with contact information was to be leaked to a direct competitor, that competitor now has a ready ability to poach your customers. These customers have a known willingness to purchase a competing product, and the poaching company is spared the time and expense of having to work to generate the list. Mark all of your client and customer lists as “Confidential and Privileged.” During exit interviews with key staff that may have access to this information, make sure that they have returned all computers and technology devices that were given to them that may have this information. And immediately terminate access to computer drives that contain this information.

The takeaway: the more a company screams, “this information is confidential and privileged,” the more inclined a court will be to agree that this information clearly was not meant to be disseminated, and to protect the information as a trade secret.

Division of a Thrift Savings Plan in Divorce

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A Thrift Savings Plan (“TSP”) is capable of division in a divorce, annulment or legal separation. It can also be garnished to satisfy a participant’s past-due alimony or child support obligations.

A TSP is a retirement savings plan for federal civilian employees and some uniformed services. It is a defined contribution plan similar to a 401(k) plan. Whenever there is a TSP, there is usually another retirement system such as a FERS annuity or military retirement.

TSP will provide some basic information to a spouse or spouse’s attorney upon written request. The information that they can provide is limited to the account balance, any loan balances, and statements. TSP cannot provide personal identification information for the member such as date of birth or social security number.

A TSP can be divided by presenting TSP with a court order that complies with 5 U.S.C. §§ 8435(c), 8467 and 5 C.F.R. part 1653 subp. A. TSP can provide a “model order” to assist the preparer in complying with the necessary language. From a valid order, TSP will pay out the payee’s present designated entitlement, but will not honor an order for a future payment.

It is recommended that once a TSP is identified as part of community property, that a court order be issued to freeze the TSP account. That will prevent or limit post-separation loans or withdrawals.

In the event of a divorce, a member should take steps to file a new designation of beneficiary with TSP to ensure that the beneficiary they want to receive benefits is the person currently named. Otherwise, TSP has no option but to pay out to the beneficiary listed, even if that is a former spouse! That is true even if the former spouse waived any interest in the TSP account.

To garnish a TSP for unpaid support, TSP must be presented with a writ, order, or similar legal device that properly instructs them as to the amount to be paid and to whom. TSP can usually provide payment within 60 days of receiving a final order, but additional time will be needed to prepare for that final order.

If you are contemplating divorce, or have additional questions about a TSP Plan incidental to a divorce or legal separation, please contact Kring & Chung, LLP‘s Family Law Department. Kring & Chung has family law practitioners in its Irvine and Las Vegas offices.

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