When is a Trade Secret Really a Secret? Protecting Your Business Without Unfairly Restricting Employees

G.R. No. 98458, July 17, 1996

Imagine pouring your heart and soul into developing a unique recipe, only to have a former employee share it with your competitor. That’s the fear that drives many businesses to fiercely protect their “trade secrets.” But what happens when an employer’s definition of a trade secret is overly broad, potentially stifling an employee’s ability to earn a living? This case explores the delicate balance between protecting legitimate business interests and safeguarding employee rights.

Cocoland Development Corporation dismissed Jeremias Mago, an agriculturist, for allegedly divulging the company’s coffee propagation techniques. The core question: Was Cocoland’s technology truly a trade secret, and was Mago’s dismissal justified?

Defining Trade Secrets and Employee Obligations

Philippine law recognizes the importance of protecting trade secrets. However, not everything an employer deems confidential automatically qualifies as such. A trade secret must genuinely provide a competitive edge and be guarded with reasonable measures.

Article 133 of the Revised Penal Code addresses the revealing of industrial secrets by an employee: “The penalty of prision correccional in its minimum period or a fine ranging from One thousand to Five thousand pesos, or both, shall be imposed upon any employee, agent or workman of any manufacturing or industrial establishment who, without the consent of the owner thereof, shall reveal the secrets of the industry of the latter in any manner.”

This provision shows that there must be an existing industrial secret that the employee reveals without the consent of the owner. The question is, how do we define an industrial secret?

The Labor Code also protects employees from unjust dismissal. An employer must have a just cause and follow due process before terminating an employee. This includes providing notice of the charges and an opportunity for the employee to be heard.

Here’s a hypothetical: A software company requires all employees to sign a non-disclosure agreement (NDA) protecting its proprietary code. This is a reasonable measure. However, if the company tries to claim that general programming knowledge is a trade secret, that would likely be deemed unreasonable.

The Cocoland vs. Mago Case: A Detailed Look

Jeremias Mago, an experienced agriculturist, worked for Cocoland Development Corporation. He provided technical services to small farmers outside of his work hours, which Cocoland considered a breach of their policy against disclosing trade secrets.

Here’s a breakdown of the case’s journey:

• Cocoland issued a memorandum accusing Mago of divulging company technology.
• Mago responded, stating the technology wasn’t a secret and others had done the same.
• Cocoland demanded an explanation, then terminated Mago for loss of trust and confidence.
• Mago filed an illegal dismissal complaint.
• The Labor Arbiter ruled in Mago’s favor, finding the dismissal illegal.
• The NLRC affirmed the Labor Arbiter’s decision, ordering reinstatement and backwages.

The Supreme Court ultimately upheld the NLRC’s decision, albeit with modifications.

The Court emphasized that an employer’s determination of a trade secret isn’t binding. As the Court stated, “Any determination by management as to the confidential nature of technologies, processes, formulae or other so-called trade secrets must have a substantial factual basis which can pass judicial scrutiny.”

Furthermore, the Court noted the lack of due process in Mago’s dismissal: “Petitioner’s failure to give private respondent the benefit of a hearing and an investigation before his termination constitutes an infringement of his right to due process of law.”

“The twin requirements of notice and hearing constitute essential elements of due process in cases of employee dismissal,” the Supreme Court stated.

Practical Implications for Employers and Employees

This case serves as a reminder that employers must be reasonable in defining trade secrets and follow due process when disciplining employees. Overly broad claims of confidentiality can backfire, especially if the information is already publicly available.

For employees, it highlights the importance of understanding company policies and seeking clarification when unsure about what constitutes a trade secret. However, it also reinforces their right to due process and protection against unjust dismissal.

Key Lessons

• Employers must establish a clear factual basis for claiming something as a trade secret.
• Due process is crucial in employee dismissals. Provide notice and a fair hearing.
• Employees have the right to challenge overly broad confidentiality claims.

Frequently Asked Questions (FAQs)

Q: What exactly constitutes a trade secret?

A: A trade secret is information that provides a business with a competitive edge, is not generally known, and is subject to reasonable efforts to maintain its secrecy.

Q: Can my employer fire me for sharing information if they didn’t tell me it was confidential?

A: It depends. If the information is genuinely a trade secret and you should have reasonably known it was confidential, you could face disciplinary action. However, lack of clear communication from the employer weakens their case.

Q: What is due process in the context of employee dismissal?

A: Due process means you’re entitled to notice of the charges against you and an opportunity to be heard before being dismissed.

Q: What should I do if I think my employer is unfairly claiming something is a trade secret?

A: Seek legal advice. An attorney can help you assess the situation and protect your rights.

Q: Can I be fired for “moonlighting” or working a second job?

A: Not necessarily. Unless your second job directly competes with your employer or violates a valid company policy, it’s generally not grounds for dismissal.

Q: What kind of evidence can be used to prove that a technology is publicly known and not a trade secret?

A: Publicly available documents, publications, or even common knowledge within the industry can be used as evidence.

Q: How do I know if my employer has acted in bad faith when dismissing me?

A: Bad faith can be shown through malicious or oppressive actions, such as humiliating you during the dismissal process or making false accusations.

ASG Law specializes in labor law and employment disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.