Employment Agreements & Trade Secrets

An employee walks out the door and joins a competitor, taking your customer list, pricing strategy, and proprietary processes. You call an attorney asking if you can stop them. The answer depends largely on whether you had a written employment agreement with clear confidentiality and trade secret protections. Without one, your recourse is limited.

Pennsylvania Employment at-Will Doctrine

Pennsylvania, like most states, operates under the employment at-will doctrine: absent a written contract stating otherwise, either the employer or employee can terminate the employment relationship at any time, for any reason (except illegal reasons), with no notice. This is the default rule.

An employment agreement modifies at-will status, potentially by imposing notice requirements, specifying grounds for termination, defining severance, or creating a contract for a term (e.g., "employment for two years"). However, not every employee needs a written agreement. Casual relationships or low-risk positions may not warrant the complexity. High-level employees, those with access to sensitive information, or key contributors should have written agreements.

When You Need an Employment Agreement

Consider a written agreement when the employee:

• Has access to confidential information, trade secrets, or customer lists.
• Works in a sales or business development role with client relationships.
• Will develop intellectual property (software, designs, processes) for the company.
• Is a key executive or co-owner with decision-making authority.
• Has a specialized skill and you want to protect against immediate competition if they leave.
• Is moving to the company from a competitor.

For administrative staff or general labor positions with no special access, an employment agreement may be overkill. However, even administrative staff typically should sign a confidentiality and IP assignment agreement.

Key Provisions in Employment Agreements

Compensation and Benefits

Specify salary or hourly wage, frequency of payment, bonuses (if any, with conditions), and benefits (health insurance, retirement plan, paid leave). Being explicit prevents disputes about promised bonuses or equity stakes that were verbally discussed but not documented.

Job Title, Duties, and Reporting Structure

Define the position, key responsibilities, and the employee's supervisor. This provides clarity and helps establish the employee's role if disputes arise about scope of work or authority.

Confidential Information and Trade Secrets

This is critical. Define what constitutes confidential information: customer lists, pricing, financial data, technical processes, proprietary methodologies, business plans, etc. Require the employee to keep this information confidential during and after employment. Specify that confidential information remains the property of the company and must be returned upon termination.

Intellectual Property (IP) Assignment

Clarify who owns work product, and do not assume the law fills the gap for you. The rules differ depending on the type of work. For copyrightable works (writings, designs, software code), the federal work-made-for-hire doctrine (17 U.S.C. sec. 201(b)) generally vests ownership in the employer when the work is prepared by an employee within the scope of employment. For inventions and patents, the default is the opposite: absent a written assignment, the employee-inventor owns the invention, and the employer typically receives only a non-exclusive, royalty-free "shop right." That is why an express IP assignment agreement is essential, especially for engineers and software developers. State explicitly that inventions, software, designs, writings, and processes created during employment are assigned to and owned by the company.

Non-Compete and Non-Solicitation Clauses

A non-compete restricts the employee from working for competitors or starting a competing business for a specified time (typically 6 months to 2 years) and geographic area after departure. A non-solicitation prevents the employee from soliciting customers, clients, or employees of the company for a similar period. Non-competes are enforceable in Pennsylvania if they are reasonable in scope, geography, and duration, and if they protect a legitimate business interest (customer relationships, trade secrets, confidential information). See the dedicated page on Non-Compete & Restrictive Covenants for detailed guidance.

Termination and Severance

Specify the conditions under which employment can be terminated (for cause, without cause, resignation, etc.). Define "for cause" narrowly and clearly (e.g., "willful violation of company policy, dishonesty, or criminal activity"). If offering severance for termination without cause, specify the amount or formula and any conditions (e.g., execution of a release of claims).

Dispute Resolution and Governing Law

Specify that the agreement is governed by Pennsylvania law. Consider including a provision requiring mediation or arbitration before litigation, which can save costs and time.

Acknowledgment and Consent

Include a statement that the employee acknowledges receipt of the agreement, understands its terms, and agrees to be bound by them. This prevents later claims that the employee did not know about confidentiality or IP assignment obligations.

Pennsylvania Trade Secret Protection (PUTSA)

Pennsylvania has adopted the Uniform Trade Secrets Act (UTSA), codified at 12 Pa.C.S. § 5301 to 5308 (the "Pennsylvania Uniform Trade Secrets Act" or PUTSA). This law defines trade secrets and provides civil remedies for misappropriation.

What is a Trade Secret?

Under § 5302, a trade secret is information that:

• Derives independent economic value from not being generally known, AND
• Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Trade secrets can include customer lists, pricing formulas, manufacturing processes, software code, business strategies, and supplier relationships. The information must be truly secret (not readily available to the public) and the company must take reasonable steps to protect it (confidentiality agreements, restricted access, password protection, etc.).

Remedies for Misappropriation

If an employee misappropriates a trade secret, the company can seek injunctive relief (a court order preventing further disclosure) under § 5303 and damages for actual loss or unjust enrichment under § 5304. The statute of limitations is three years, running from when the misappropriation was discovered or, by the exercise of reasonable diligence, should have been discovered (§ 5307). That second half matters. A company that had reason to suspect a leak and did not look into it can be time-barred well before three years from the date it says it actually found out.

Importantly, PUTSA remedies complement (but do not require) confidentiality or non-compete clauses in an employment agreement. Even without a written agreement, if the information qualifies as a trade secret and the employee knew or should have known it was confidential, the company has remedies under PUTSA. However, written confidentiality agreements make enforcement much easier by establishing intent and creating documented notice.

A PUTSA claim can run alongside a federal claim under the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836 et seq., which gives trade secret owners a federal civil cause of action and access to federal court. To preserve DTSA's enhanced remedies, an employment agreement covering trade secrets or other confidential information should include the whistleblower-immunity notice required by 18 U.S.C. § 1833(b). That provision protects an employee who discloses a trade secret in confidence to a government official or attorney solely to report a suspected violation of law, or in a court filing made under seal. If the agreement omits the notice, the company may lose its ability to recover exemplary damages and attorney's fees against that employee in a later DTSA action.

Practical Confidentiality Measures

Having a written agreement is step one. To strengthen trade secret protection under PUTSA, take concrete steps to maintain secrecy:

• Limit Access: Only grant access to confidential information to employees who need it for their job. Keep customer lists, pricing, and technical documentation on secure servers with password protection and access logs.
• Mark Documents: Label confidential documents "Confidential: Proprietary" to demonstrate the company's intent to keep them secret.
• Non-Disclosure in All Communications: Reference confidentiality obligations in onboarding materials, employee handbooks, and periodic reminders.
• Exit Interview and Return of Materials: When an employee departs, conduct an exit interview reminding them of confidentiality obligations, have them sign a release acknowledging they have returned all confidential materials, and document what was returned.
• Audit and Monitor: Periodically review who has access to sensitive information. If an employee preparing to leave is downloading large amounts of data or accessing files outside their normal job function, document it.

The Relationship Between Employment Agreements and Non-Competes

Confidentiality agreements and non-compete clauses serve different purposes. A confidentiality agreement protects the company's proprietary information; a non-compete restricts the employee's ability to work for competitors. Pennsylvania courts scrutinize non-competes closely. They are enforceable only if:

• The restriction is supported by adequate consideration. For a covenant signed after employment has already begun, Pennsylvania requires new, independent consideration (a raise, promotion, bonus, or other tangible benefit); continued employment alone is not sufficient.
• The restriction is reasonable in scope (what activities are restricted), geography (what territory), and duration (how long).
• The restriction protects a legitimate business interest (trade secrets, confidential information, customer relationships, ongoing business or professional practice).
• The restriction is not unduly harsh or oppressive to the employee or the public.

A confidentiality agreement, by contrast, is more likely to be enforced because it merely prevents disclosure of secrets, not the employee's ability to work. Courts are generally more receptive to confidentiality obligations than non-competes, particularly if the information is genuinely confidential and the company took reasonable precautions.

Drafting Considerations and Common Mistakes

Too Broad Confidentiality Definition: Classifying everything as confidential (including information that is publicly available or commonly known in the industry) weakens the agreement and may make courts skeptical. Define confidential information carefully and give examples.

Non-Compete Without Legitimate Interest: If the employee is a general administrator with no customer relationships or access to trade secrets, a non-compete is hard to enforce. Tailor restrictions to the actual business interests the company is protecting.

Unreasonable Restrictions: A 5-year non-compete covering the entire United States for a local service business will likely fail. Courts favor 6-month to 2-year restrictions in reasonable geographic areas. Overbroad language can render the entire clause unenforceable.

No Consideration for Existing Employees: If offering an employment agreement to an existing employee, provide new consideration (a raise, promotion, bonus, or other tangible benefit) in exchange for the confidentiality and non-compete obligations. Under Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266 (Pa. 2015), mere continued employment is not sufficient consideration for a restrictive covenant signed after employment has already begun; the employee must receive new, additional consideration beyond continued employment for the covenant to be enforceable.

Conflicting Provisions: Do not state that the employee owns inventions created during employment and then claim ownership in the agreement. Choose one and stick with it.

What Happens If an Employee Violates Confidentiality

If you suspect an employee has disclosed trade secrets, act quickly:

Start by documenting what you know: note what information you believe was disclosed, when, to whom, and how you discovered it, and if the employee is downloading files or accessing unusual systems, preserve those logs and communications. Before confronting the employee, speak with an attorney; an improper confrontation can lead to defamation claims or retaliation lawsuits. Often a formal cease and desist letter from counsel, reminding the employee of their confidentiality obligations and warning against further disclosure, is enough to stop the behavior. If it is not, and the employee keeps disclosing information, the next step is an emergency injunction in court to stop further disclosure before pursuing damages.

Legal and factual content on this page was last verified: Aug. 2026. If you are reading this significantly after that date, confirm key provisions with current statute text or contact our office.