Legal Updates

A breach of an employment agreement, as well as stealing trade secrets, constitutes a reason to invalidate an option agreement

September 7, 2020

An employee resigned and took home his work laptop along with the material on it. Prior to returning the equipment to the company the employee copied the material on the laptop to an external hard-drive and formatted the laptop. As a result, the company terminated the agreement for cause and cancelled the stock options of the employee.
The Labor Court held that the employee’s actions constitute a breach of his employment agreement, amounting to an infringement of trade secrets, and invalidates the employee’s stock options. A trade secret is any business data that is not in the possession of the general public, that is not easily discoverable, and that its confidentiality provides the owner a business advantage of some sort, all provided that the employer has taken reasonable efforts to protect the data. Thus, data on the work computer, including source code, software, emails etc. may be deemed trade secrets of the employer. It is not required for the employee to make use of the data and it is sufficient that the employee is in possession of the trade secret without the explicit consent of the employer. Additionally, when an employee is in breach of his employment agreement, and steals his employer’s trade secrets, the termination by the company constitutes a “termination for cause’ and invalidates the entitlement to stock options under the option agreement.