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A&A: Is a Salary/Wage Review Really A “Trade Secret”?

Q: Our District Hospital contracted with a company to do a salary/wage and benefit review of hospital employees. They are meeting in closed session and discussing this report as a “trade secret.” I have requested a copy of this report under the CPRA and was refused based on the trade secret exemption. Their response was, “Said records are not subject to public disclosure as they constitute valuable trade secrets of the District which if disclosed to competitors could undermine the District’s efforts to recruit and retain qualified employees (California Government Code Section 6267 and California Evidence Code Section 1060).” Is this in fact truly a trade secret?

A: As you probably know, under the Public Records Act, public records — which include “any writing containing information relating to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency regardless of physical form or characteristics,” Gov’t Code § 6252(e) — are presumed to be open to the public and must be disclosed unless a specific provision of the Act or other law exempts them from disclosure.

The Act includes an exemption for documents that contain trade secrets or otherwise privileged information. Gov’t Code § 6254(k) exempts from disclosure “[r]ecords, the disclosure of which is exempted or prohibited pursuant to federal or state law, including, but not limited to, provisions of the Evidence Code relating to privilege.”

Evidence Code § 1060 provides that the owner of a trade secret “has a privilege to refuse to disclose the secret, and to prevent another from disclosing it, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice.” “Trade secret” is defined under California law as: “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Cal. Civ. Code § 3426.1(d).

It seems unlikely that the salary information contained in the report possessed by the district would constitute a “trade secret,” and therefore may not be exempt from disclosure under the Act. As a preliminary matter, the California Supreme Court has held that salary information is required to be made public, including information that shows the salaries of individually named public employees. See International Federation of Processional Engineers v. Superior Court, 42 Cal. 4th 319, 331 (“[t]he ‘broadly based and widely accepted community norm[]’ applicable to government employee salary information is public disclosure”). It would seem that this case law, alone, would be enough to compel the district to disclose the salary report.

However, it is worth also exploring what constitutes a trade secret in California. The leading case is Uribe v. Howie, 19 Cal. App. 3d 194, 211 (1971), in which the court held that pesticide spray reports filed with the state agricultural commissioner were not trade secrets, and therefore were not exempted from disclosure under section 6254(k). Quoting the Restatement of Torts, the court states that a trade secret “is not simply information as to a single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees,” but a “process or device for continuous use in the operation of the business.” Id. at 207 (emphasis added).

The court also reiterates the Restatement’s comment that a “substantial element of secrecy must exist, so that … there would be difficulty in acquiring the information. … Some factors to be considered in determining whether given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.” Id. at 208. Finally, the court cites the value to the public that the reports in this case have, considering that members of the public might want to comment on the commission’s regulations regarding spraying. Id. at 503.

Applying some of these considerations to the salary information that the hospital district possesses, it is not clear that this information could be classified as a “trade secret” that is exempt from disclosure under the Act. First, as the Uribe court stated, salary information could be classified as “ephemeral events” with respect to the conduct of the district’s business. Salary and benefits structures are constantly changing (which is probably why the district hired its consultant to perform this review).

The fact that this information might be used by other hospitals for purposes of recruiting talent is probably not enough to place this information in the category of “trade secret.” This is information that competitors could discover in a number of ways (i.e., from potential recruits themselves, or through their own salary survey). Second, the hospital district has used public funds to commission this salary/benefit review, and the results of the survey are of interest to the public to the extent that it offers a glimpse into the financial health and workings of the district, something that certainly would be of interest to the public. Third, this information is probably not heavily guarded by the hospital district in the way that bona fide trade secrets possessed by private businesses are protected. A doctor or nurse employed by the district probably has not signed a confidentiality agreement regarding his or her salary and benefits, and therefore is free to share this information with family members, acquaintances or even potential future employers, who sometimes ask for a salary history when considering an individual for employment.

If you have not already done so, I suggest you submit a written request under the PRA for a copy of the salary report. You should specifically state in your request that, if the agency denies your request, you would like a detailed explanation as to the reasons that the exemption it cites apply. (Under the PRA, the agency is obligated to back its denial by citing an exemption in the PRA or other state or federal law allowing it to withhold the records you seek. Gov’t code § 6255.) You may want to preemptively include some of the law cited above in your letter so that the district will be forced to think through whether its denial of your request is prudent. The PRA requires agencies to provide you with the documents requested, or notify you that your request has been denied, within 10 days. A sample PRA request letter is found on CFAC’s website at the following link: http://www.cfac.org/templates/cpraletter.html.

You may also want to look over the public records section of the First Amendment Coalition’s website for more information on how you might gain access to the records you are interested in: https://firstamendmentcoalition.org/category/resources/access-to-records/. Finally, if the district continues to deny your request, you may consider taking legal action to force disclosure of the records. Lawsuits to enforce the CPRA are usually initiated by a verified petition that asks the court to issue a “writ of mandate,” which is an order directing the public agency to take specified action.

If you need professional assistance in filing your lawsuit, you might try using FAC’s Lawyer’s Assistance Request Form at https://firstamendmentcoalition.org/lawyers-assistance-request-form/ in order to find a public records attorney in your area.

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One Response to A&A: Is a Salary/Wage Review Really A “Trade Secret”?

  1. Terry Francke, Californians Aware July 2, 2010 at 10:37 pm #

    The kind of “trade secret” that the district hospital must have in mind (in order to justify a closed session despite the Brown Act) would be a “health care facility trade secret,” defined in Health and Safety Code Section 32106 as meaning

    a “trade secret,” as defined in subdivision (d) of Section 3426.1 of the Civil Code, and in addition (which) meets all of the following:
    (1) Is necessary to initiate a new district service or program or add a district health care facility.
    (2) Would, if prematurely disclosed, create a substantial probability of depriving the district of a substantial economic benefit.

    Obviously this definition is even more restrictive than the Evidence Code definition and would disqualify the report, which has nothing to do with initiating a new district service or program, from protection under either this statute or the CPRA.

    The hospital may well have strong reasons for not letting its staff know what their counterparts elsewhere are paid, but that is not a recognized basis for withholding such a document.

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