In many businesses, the most important assets can be included in two categories: intellectual property and trained personnel. Businesses spend years and millions of dollars developing confidential and proprietary procedures, formulas, customer and vendor lists, and other types of proprietary information, and can spend years training employees. These same employees are routinely exposed to customer and vendor lists, proprietary policies and procedures, trade secrets and other information that could be devastating should it fall into the hands of competitors. Additionally, employees are routinely given training that takes years and costs hundreds of thousands of dollars, and these employees are given access to and develop relationships with the clients and vendors of the company. Fortunately, through the use of appropriate employment agreements, it is possible for a company to protect itself from these threats, or at least significantly limit the risks associated therewith.
Restrictive Covenants Generally
It is possible for companies to protect themselves through the use of special employment contractual provisions known as “restrictive covenants.” A restrictive covenant is a provision within an employment contract whereby the employee agrees not to do certain things damaging to his or her employer during the course of employment or after the employment relationship has terminated. Restrictive covenants include the following types: (i) confidentiality and non-disclosure provisions, (ii) non-solicitation provisions, and (iii) covenants not to compete. Confidentiality Provisions While the law will, in the absence of confidentiality provisions, protect confidential and trade secret information from unlawful dissemination, determining exactly what constitutes information subject to protection and what procedures govern its protection can be a highly expensive and uncertain practice, rendering litigation far more lengthy and expensive. Having confidentiality provisions in place that outline what information constitutes the intellectual property and trade secrets of the company and the processes governing their protection will make the enforcement of those rights much easier and more cost-effective. Of course, carefully addressing these issues prior to the threat of dissemination makes such dissemination less likely, through the implied threat of contract litigation. Non-Solicitation Provisions Customer and employer relationships are often the primary asset of a company, and, in the absence of non-solicitation restrictions, there is often little a company can do to prevent a former employee from luring customers or employees to the new employer. Fortunately, this concern can be largely addressed through the use of non-solicitation provisions. Generally speaking, non-solicitation provisions prevent an employee or former employee from directly or indirectly luring customers, certain prospective customers, and employees during the time of employment and for a specified length of time after the employment relationship ceases. These types of provisions are subject to technical requirements that vary widely from state to state, so it is important to obtain legal counsel before putting them before employees for signature to ensure a court will not find them unenforceable should litigation or the threat thereof become necessary. Covenants Not to Compete Finally, it may be possible to entirely prevent former employees from competing against the former employer. While courts generally do not favor the enforcement of covenants not to compete, if the company can demonstrate a legitimate need requiring their protection, and if the provisions are “reasonable” in both geographic scope and in the length of time a former employee will be prohibited from competing, former employees can be prevented from competing with former employers and using their knowledge and contacts against them. The enforceability of covenants not to compete will generally be viewed by the courts on a case-by-case basis, and whether or not they will be enforced depends upon a detailed analysis of the particular facts and circumstances in question. As with non-solicitation provisions, the laws governing the enforceability of covenants not to compete vary dramatically from state to state, and it is important to obtain qualified legal counsel when drafting and presenting such provisions for signature. That said, if drafted appropriately and conservatively, it is likely a court will find these provisions enforceable, which will give a company an extremely powerful tool in protecting its trade secrets, proprietary information, and customer and employee relationships. Conclusion There are few businesses that would not benefit from the implementation of restrictive covenants. And, considering the relatively low costs associated with drafting and implementing these types of agreements, it would be shortsighted for companies requiring protection not to avail themselves of these tools. Michael L. Kitchen (email@example.com) practices in the areas of contract and employment litigation, and focuses a large portion of his practice on the drafting and enforcement of restrictive covenants.