Power Point Presentation - Protecting your Confidential

PROTECTING YOUR CONFIDENTIAL INFORMATION:BEST PRACTICES FOR NON-‐COMPETITION AND NON-‐SOLICITATION AGREEMENTS

JUNE 16, 2016

Brian J. KellyChristopher C. Koehler

GOALS

• Designing agreements with restrictions that satisfy your business goals

• Implementing a program for agreements that is appropriate to your industry and workforce

• Enforcing the agreements when an employee leaves your company

COMMONLY USED AGREEMENTS

• Three commonly-‐used agreements:• Non-‐compete agreements• Non-‐solicitation agreements• Non-‐disclosure/confidentiality agreements

• Often combined together in a single agreement• Provide different protections

NON-‐COMPETE AGREEMENTS

• May be used to:• Limit activities that departing employees can

engage in • Limit specific employers or categories of employers

a departing employee may work for • Intended to prevent former employees from exploiting

resources, knowledge, training and/or leads that were gained from a previous employer

NON-‐SOLICITATION AGREEMENTS

• May be used to restrict an individual from soliciting employees, customers or vendors of a business after leaving the business

• Often used as part of a non-‐compete agreement, or in lieu of a non-‐compete agreement

NON-‐DISCLOSURE AGREEMENTS

• May be used to protect disclosure of “trade secrets” and other confidential information that is the company’s intellectual property

• These agreements are also referred to as:• Confidentiality agreements• Proprietary information and assignment agreements• NDAs

NON-‐DISCLOSURE AGREEMENTS

• “Trade secrets” often comprise customer lists, pricing-‐sensitive or marketing information, marketing strategies, unpatented inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a business edge

• Information is more likely to be considered a trade secret if it is:• Not known outside of the particular business entity• Known only by employees and others involved in the business• Subject to reasonable measures to guard the secrecy of the

information• Valuable• Difficult for others to properly acquire or independently

duplicate

BEST PRACTICES FOR PREPARING AGREEMENTSPrimary considerations:• Determine your business goals and interests• Prepare an agreement that satisfies those interests, and only those interests – Do not overreach!

• Draft an agreement that is likely to be enforceable and will withstand court scrutiny

BEST PRACTICES FOR PREPARING AGREEMENTS• Since these agreements are restrictive covenants, they

cannot impose “unreasonable restraints of trade”• Courts always assess reasonableness of restrictions, in

light of the business interests being protected• Time restrictions – How long can the former employee be prohibited

from soliciting?• Territory restrictions/geographical scope –Where can the former

employee be precluded from working?• Prohibited activities – What can the former employee be prohibited from

doing?• Prohibited contacts – Who can the former employee be precluded from

contacting?• Prohibited employment –Who can the former employee be prohibited

from working for? What industries are off limits?

BEST PRACTICES FOR PREPARING AGREEMENTS• Restrictions should be no broader than necessary to

protect employer’s legitimate business interests• There is no black-‐and-‐white rule; each court analyzes

restrictions on a case-‐by-‐case basis• If the restriction is broader than necessary to satisfy

employer’s legitimate business goals, a court can:• Refuse to enforce it• Rewrite the argument to narrow the restrictions

BEST PRACTICES FOR PREPARING AGREEMENTS• Consider whether restriction imposes undue hardship on

employee• Courts frequently weigh employer’s legitimate

business interest against former employee’s right to pursue employment in his/her area of expertise

• Consider whether restriction is contrary to the public interest• Courts frequently consider whether public will be

injured by lack of competition (e.g., will restricting activities of former employee result in monopoly, or create shortage of services/ professionals in area?)

BEST PRACTICES FOR PREPARING AGREEMENTS• Tips for making restrictions reasonable:

• Make sure any geographic restriction is coextensive with the area in which the employer does business –and maybe even the territory in which the employee had responsibility

• Make sure the length of time employee is restricted from competing correlates with time it takes to acquire and maintain clients, or to train replacements (or some other reasonable factor)

• Make sure all restrictions on activities (such as working for competitor or soliciting customers) are narrowly tailored to protect the employer’s legitimate business interests

BEST PRACTICES FOR PREPARING AGREEMENTS• More drafting considerations:

• Strive for consistency in your agreements among similarly-‐situated employees

• A consistent approach to what your legitimate business interests are, and what restrictions are necessary to protect those interests, increases the enforceability of the restrictions

• However, especially for key employees, consider tailoring the agreement to the individual as opposed to using the company’s “form” agreement

BEST PRACTICES FOR PREPARING AGREEMENTS• For non-‐disclosure agreements, include a clear definition

of what constitutes confidential and proprietary information• Not everything is “confidential” – include only what

you actually treat as confidential• Courts are less impressed with a laundry list than

with a concise statement of what is truly confidential

BEST PRACTICES FOR PREPARING AGREEMENTS• Key provisions to include in all agreements• Require former employee to notify new employer of

restrictions• Integration clause – The written agreement should be

the last word on any restrictions; discussions, or promises, outside the agreement are unenforceable

• Choice of law clause – Which state’s law applies?• Consent to personal jurisdiction/venue– Where can

former employee be sued?• E.g., if employee works in a state hostile to non-‐

competition agreements (such as California), choice of law and venue provisions could mean the difference between an enforceable and unenforceable agreement

BEST PRACTICES FOR PREPARING AGREEMENTS• Severability– If one restriction is found to be enforceable,

others are still valid• Injunctive relief – Permits company to seek restraining

order or injunction to stop violations• Waiver – If company fails to pursue one employee for

violations, it doesn’t waive its right to pursue others• Assignment – Company can assign the contract to a

successor company

BEST PRACTICES FOR PREPARING AGREEMENTS• Provisions to include in non-‐disclosure agreements:

• Agreement not to use or disclose company’s confidential and proprietary information or confidential and proprietary information of third parties (even though employment ends)

• Agreement not to use or disclose any confidential and proprietary information belonging to former employers

• Assignment of intellectual property rights• Enforcement of intellectual property rights• Return of employer property upon termination

(including confidential and proprietary information)

BEST PRACTICES FOR IMPLEMENTING YOUR PROGRAM• Determine which employees should be required to sign

agreements• Employees with access to confidential

information/trade secrets• Key employees• Employees with extensive customer contact• Sales and marketing • Can include administrative staff

BEST PRACTICES FOR IMPLEMENTING YOUR PROGRAM• Timing of presenting agreement/consideration

• Normally, entered into at beginning of employment, or upon obtaining new title/position/responsibilities/compensation

• Like all contracts, restrictive covenants need to be supported by adequate consideration• A new offer of employment or change in

conditions of employment is adequate consideration

• Continued employment in Ohio also is adequate• Not so in some states

BEST PRACTICES FOR IMPLEMENTING YOUR PROGRAM• Strive for consistency• The fewer different forms, the better• Impose similar restrictions on similar employees• Avoid negotiating exceptions for certain employees• If an employee refuses to sign agreement, what will

you do?• Get a signed copy, and give the employee a copy

BEST PRACTICES FOR IMPLEMENTING YOUR PROGRAM• Make sure restrictions in agreements are consistent with

other company documents – If not, restrictions might be unenforceable• Employee handbooks• Compensation agreements• Buy/Sell agreements

• Update agreements as necessary• What constitutes “confidential” information may

change• Job duties/responsibilities/geographic scope may

change

BEST PRACTICES FOR IMPLEMENTING YOUR PROGRAM • Pre-‐Existing Non-‐Compete Agreements• Require new applicant to disclose any non-‐

disclosure/non-‐compete agreements before hire—and get a copy and review agreement yourself!

• Assess risk of hiring restricted employee—be proactive and identify the potential issues in advance• Note: Hiring an employee subject to a non-‐compete

agreement/non-‐disclosure agreement may lead to claims against company, not just employee, such as tortious interference with contract or business relationship or violation of trade secret laws

• Consider where the new employee will work—depending upon terms of agreement and/or applicable law, prior agreement may not be enforceable

BEST PRACTICES FOR IMPLEMENTING YOUR PROGRAM • Require new employees to comply with non-‐

disclosure/non-‐compete agreement from prior job• Take affirmative steps (preferably in writing) to ensure that

employee complies with agreement, such as reminding him/her of their obligations to former employer and instructing him/her not to bring or use any of former employer’s information/property

• Consider changing scope of employment to ensure (or attempt to ensure) that new hire’s activities/territory do not conflict with pre-‐existing agreement

• Look ahead—determine whether or not you will defend/ indemnify new employee in case of litigation, and under what terms

BEST PRACTICES FOR ENFORCING AGREEMENTS• Develop a consistent policy, and follow it in every

instance• If company is selective in enforcing agreements:• It may have harder time proving the legitimacy of the

business interest it is trying to protect• Employees will not be deterred from violating their

agreements• CAUTION! Enforceability of agreements is state specific:• Some states allow non-‐competition agreements• Some states allow them in limited circumstances• Some states do not allow them at all• May be governed by statute in some states

BEST PRACTICES FOR ENFORCING AGREEMENTS• When employees leave or are terminated:• Remind them of their obligations, in writing• Investigate their pre-‐termination activities• Computer usage• Emails• Documents accessed, removed or copied• Monitor their post-‐termination activities

• If you suspect they are violating their restrictions:• Act decisively and quickly• Send cease-‐and-‐desist letter to employee• In some cases, send letter to new employer

BEST PRACTICES FOR ENFORCING AGREEMENTS• Litigation, if necessary

• At outset, determine threat posed by former employee and design litigation strategy that matches company’s goals• Consider likely outcomes• Consider litigation costs• Consider risk of not taking action

• Loss of customers• Impact on remaining employees

BEST PRACTICES FOR ENFORCING AGREEMENTS• Determine whether to seek injunction or restraining

order – court will consider:• Whether the plaintiff has at least a reasonable likelihood of success

on the merits

• Whether the plaintiff will have an adequate remedy at law or will be irreparably harmed absent an injunction

• Whether the threatened injury to the plaintiff outweighs the threatened harm the injunction may inflict on the former employee

• Whether the granting of the injunction will disserve the public interest

• Determine whether you have suffered and can recover damages• Lost customers/revenue

• Attorneys fees

QUESTIONS

Brian J. Kelly(216) 515-‐[email protected]

Christopher C. Koehler(216) 515-‐[email protected]

FrantzWard.com

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