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Confidentiality Agreements Are Now a "Must Have" for Companies Engaging Independent Contractors

Traditionally, prudent companies in Massachusetts have insisted on confidentiality agreements for employees that handle sensitive information at work. These same companies have given independent contractors access to the same sensitive information without giving a second thought to executing such an agreement. The recent Superior Court decision of C.R.T.R., Inc. v. Lao, et al. places a new burden on companies engaging independent contractors to take proactive steps to protect information they wish to keep confidential.

C.R.T.R. provides recycling services for nonfunctioning electronics (“E-waste”). In the course of transitioning the company to a new owner, C.R.T.R. brought on defendant, Jimmy Lao, as an independent contractor in 2009. He was tasked with assisting management in running the organization. Although Laos had access to essentially all of C.R.T.R.’s trade secrets, he was not required to sign a confidentiality agreement.   

In 2011, the relationship between C.R.T.R. and Lao soured when the company failed to provide him with an agreed upon discount. Shortly thereafter, he resigned and later that month C.R.T.R. commenced the instant action seeking injunctive relief as to the Lao’s use of its proprietary information. Specifically, C.R.T.R. alleged that Laos had misappropriated customer names, information about C.R.T.R.’s business relationships and its internal accounting records.

In order to prevail, C.R.T.R. would have to establish that the subject information was in fact a trade secret, that C.R.T.R. took reasonable steps to protect that same information, and that Laos used improper means, in breach of a confidential relationship, to misuse such information. The Superior Court’s decision ultimately turned on what C.R.T.R. did, if anything, to protect the information they came into court to protect. 

Laos argued that C.R.T.R. failed to take adequate steps in protecting the information it sought to protect in this action. Most notably, Laos pointed to the fact that he was not required to sign a confidentiality agreement. C.R.T.R. offered evidence that the company’s employees understood the subject information to be confidential. The court rejected this argument stating that an employee’s “understanding” is insufficient to establish an internal policy addressing how confidential information was to be handled at C.R.T.R. In turn, the Court found that C.R.T.R. did not take adequate measures in protecting the purportedly confidential information and was now left without recourse against Laos.

This decision expands the ever growing burden that companies face in protecting themselves from issues arising at the end of a relationship. The C.R.T.R. Court implores companies to take all precautious when starting a relationship with either an employee or independent contractor. The holding mandates that in order to seek redress for future use of its once secret information, companies need to address the handling of the secret information with employees and independent contractors alike at the start of the relationship - be it through a clear policy across the organization or an agreement with each specific employee or independent contractor addressing the same.

In the wake of the C.R.T.R. decision companies using independent contractors must now be equally vigilant in protecting their proprietary information as they were with employees. Where independent contractors have access to proprietary information, the risk is now the same as providing an employee regular access to that information. Without taking the steps to alert the independent contractor to the sensitive nature of the information and to agree to keep it secretive, the company forfeits any future right to recover for use of that information. The holding in C.R.T.R. is a clear message to companies in the Commonwealth to insist on an agreement with their independent contractors at the start of any relationship if they will be handling sensitive information in performing their work.