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Employers may be able to protect trade secrets and proprietary information by asking their employees to sign employment contracts and agreements that limit the conduct of employees during and after employment. These agreements, often collectively referred to as restrictive covenants, are designed to protect company assets during employment and when employees move from company to company. Examples of restrictive covenants include confidentiality, non-disclosure, non-solicitation, and non-compete agreements. Confidentiality and non-disclosure agreements are restrictive covenants that prohibit the sharing of confidential or proprietary information with a competitor or any other interested third party. Non-solicitation agreements are restrictive covenants that prohibit recruiting co-workers from leaving an employer to work for a competitor and prohibit soliciting customers or vendors of an employer to move their business to a competitor. Non-compete agreements are restrictive covenants designed to prevent an employee working in a field, practice, or business area that directly competes with his or her former employer.
Restrictive covenants present complications for large companies operating in multiple states. Though a company may be headquartered in a state that recognizes restrictive covenants, the company may have offices in states where limitations are placed on restrictive covenants, or where certain types of restrictive covenants are unenforceable. Many states already have made post-employment restrictions difficult to enforce. In California, for example, any clause in an employment agreement that restrains an individual’s ability to earn a living or practice a profession or trade is considered void, unless it falls within an exception such as the employee’s sale of a business or withdrawal from a partnership. In other states, restrictive covenants are viewed more favorably by the courts and might be enforced in particular circumstances.
Depending on the circumstances, employers will still want to include the appropriate restrictive covenants in employment contracts and agreements. When assessing their restrictive covenant needs, employers should follow three steps to evaluating how they can use restrictive covenants to best protect their company. First, companies should identify which employees have access to a great deal of proprietary information and therefore could do the most damage in the event of a job change. Next, they should create a rubric for what kinds of protection would be needed in dealing with different types of employees. Restrictions imposed on employees should match the kind of harm they can do to a company—sometimes a non-disclosure or non-solicitation agreement is adequate, whereas a senior-level employee may need a non-compete agreement, assuming permitted by the applicable law in that jurisdiction. Finally, when making these evaluations, companies must consider the state in which employees are employed and comply with the laws and regulations of those states. They may be able to create two templates for these kinds of restrictive covenants: one for states that allow and enforce some forms of restrictive covenants (e.g., Arizona, Utah, and many others), and another for “complicated” states that are more hostile toward such covenants or consider them to be void (e.g., California, North Dakota, Oklahoma, Virginia, and handful of others).
Non-Compete, Non-Solicitation, and Restrictive Covenants Regarding Computer Use
In today’s workplace, it is common for employees to use work-issued computers to store and share personal data (e.g., personal banking and health information). Some employees use work-issued computers to access and post on social media and other public Websites as well. This conflict between employer and employee technology interests has been the subject of disputes in recent years. While employers understandably want to prevent the unauthorized use or disclosure of proprietary information through work-issued technology computers, employees argue their right to privacy does not end simply because they are using work-issued technology for personal use. A company therefore should have in place policies that govern the use of company-issued or provided computers, laptops, tablets, and smartphones, and their use in connection with the company’s computer network or internet-provided services. The company’s confidentiality agreements and policies should also make clear to the employees that there is no right to privacy in regards to any personal information or files stored on the company’s computer systems.
Non-Compete, Non-Solicitation, & Restrictive Covenants: How We Can Help
Trade secret and other claims related to employee departures have increased in recent years. Departing employees often make mistakes that expose themselves and their new employer to liability. By taking some preventative steps, both employers and employees can guard against potential trade secret and other claims related to restrictive covenants.
The restrictive covenant attorneys at Payne & Fears help clients manage risk when hiring new employees and when high-level employees depart. We regularly draft restrictive covenants, including non-compete, non-solicitation, and confidentiality agreements, that hold up to legal challenges at the local, regional, and national level. We also help clients assess the value of their proprietary company information and manage the risks of exposure presented by employee mobility.
Our restrictive covenant advice is designed to avoid potential trade secret misappropriation in the first place. In the event of a dispute, we endeavor to avoid the delays and costs of litigation where possible. That said, we will respond promptly to protect client interests in the event of a misappropriation, whether the solution means increased pressure in out-of-court negotiations or pursuing litigation in state or federal court.