Trade and Business Secrets Law enacted

It is here. The German Trade and Business Secrets Law (Geschäftsgeheimnisgesetz; GeschGehG) came into effect on April 26, 2019. Companies wishing to ensure protection of their business and trade secrets (such as customer, supplier and staff lists) in the future are required to take and document appropriate non-disclosure measures. This is effective immediately.

Appropriate non-disclosure measures

One of the major changes in the legal situation under the new GeschGehG is that business and trade secrets now comprise only those secrets that have been actively protected by the employer. Previously, the employer’s subjective intent not to disclose was enough to meet the requirements of a legally protected trade or business secret. Henceforth, full legal protection in cases of disclosure of secrets/theft of data – such as claims for damages, cease-and-desist claims, and claims to information – only applies when and if the employer has taken appropriate protection measures and has a justified interest in non-disclosure. A company must clearly and visibly document its intent to not disclose certain information.

In particular, under the new GeschGehG, an employer may no longer be justified in terminating an employee’s employment on the grounds that the employee forwarded sensitive corporate information to a competitor, if this information was not sufficiently protected. In this case, the data would not meet the requirements of a business or trade secret and this, in itself, would be enough to make the dismissal unjustified.
The question of what “appropriate non-disclosure measures” are must be resolved on a case-by-case basis. In principle, the following applies: The greater the economic importance of a business or trade secret for a company, the more the measures taken to ensure non-disclosure must meet stringent requirements. Such measures include, in particular, physical access restrictions, electronic access restrictions, and contractual protection mechanisms (see our Update Compliance No. 5/2019 and our Update IP No. 13). Since the company’s own employees often pose a high risk in the protection of business or trade secrets, it is also essential to make such employees aware of these facts.

Practical notes

Employers should delay no longer in identifying, attributing, and weighing their business and trade secrets. Business and trade secrets must also be protected from access by employees (groups of employees) for whom the information is not relevant in their everyday work. Furthermore, according to the new legal requirements, non-disclosure clauses in employment contracts must be reviewed and, if required, revised. Ideally, they should refer to corporate policies regarding the protection of business and trade secrets. A company’s own employees are bound to secrecy merely due to their incidental obligations under their employment agreements. However, taking into account the new legal situation, any failure to include non-disclosure clauses or related policies to protect business and trade secrets may result in labor courts interpreting such failure as an indication of “negligent handling” of business or trade secrets. As a result, courts could conclude that there is only a minor interest in keeping the information secret. Thus, in the weighing of the interests frequently required for the purposes of labor law, the employers’ legal position in labor law proceedings could worsen.

Employers who have so far barely or not made any considerations regarding the protection of secrets, should change their attitude now and establish non-disclosure policies regarding their trade and business secrets; not least in respect of post-contractual protection of business and trade secrets.

For further information, see our explanatory video “Psst, protect your trade secrets - New law regarding the protection of trade and business secrets”.