Protecting Your Critical Customer Relationships and Trade Secrets


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Are non-compete agreements really enforceable in our State? What are some special considerations in the financial and medical industries? Is injunctive relief available to protect our customer relationships and trade secrets? Can we terminate an employee and still enforce a non-compete agreement? Should we include a liquidated damages provision in our restrictive covenant agreements? What damages are available to our company should we prevail?

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Protecting Your Critical Customer Relationships and Trade Secrets

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  2. 2. Assets involve more than a company’s real estate andequipment.Improved technology makes it easier to moveinformation.Employee mobility and technology raise the risks thatsuch assets will find their way to a competitor.These assets can and should be protected. 2
  3. 3. Non-competes and similar agreements aren’t worth thepaper they’re written on.o Not true in most States.We don’t have any protectable information.o All employers have confidential, proprietary and trade secret information. 3
  4. 4. Identify the information you want to protect:o Inter-disciplinary assessment.Where is that information?o Not just with employees: • Customers. • Vendors. • Website. • Social Media. 4
  5. 5. Employee/customer relations issues:o Likely reaction to efforts to protect.Cultural issues:o Appetite for litigation.o Industry issues.Multistate issues:o One size fits all to state-by-state. 5
  6. 6. Consider implementing physical and virtual securityprotectionsExamples:o Lock and keyo Stamping documents “confidential”o Training employeeso Limiting employee access 6
  7. 7. Common Law.Statutes.Contracts.o Information subject to protection: • Trade secrets. • Proprietary information. • Other confidential information. 7
  8. 8. Offers protection beyond contracts, or in the event of noenforceable contractCovered by statute or common lawProtects the misappropriation, disclosure or use of:o Information of valueo At least part of the value comes from the fact competitors don’t know it 8
  9. 9. One of the most effective ways to prevent the loss ofbusiness information.Restricts employees’ use and disclosure of businessinformation.Non-Competition - Enforceable in most states if theemployer can establish a legitimate protectable interestand the covenant is reasonable in time and geographicscope. 9
  10. 10. Non-Disclosureo A policy is not a contractGive everything backNon-Solicitation – employeesNon-Solicitation – customersNon-CompeteNote: Also apply during employment 10
  11. 11. Length of time of the restriction.Geographical area covered.Scope of business covered.Fairness and business needs.Extent of the restraint on the employees opportunity topursue his occupation.Extent of interference with the publics interests. 11
  12. 12. There are certain provisions that should be consideredstandard in agreements in most jurisdictions.However, there are jurisdictions with specificrequirements. 12
  13. 13. If newly hired employee, make getting the job and theaccess to confidential information associated therewiththe consideration:o The agreement should be referenced in the offer letter and employment contract, and should be signed before employment begins.If current employee, provide something of value that theemployee would not otherwise have received.Agree to provide employee access to businessinformation. 13
  14. 14. Define and limit use of business information.Return all property upon cessation of employment andupon request, whether or not within definition.Prohibition against solicitation of employees.Prohibition against solicitation of/doing business withcustomers.Prohibition against unfair competition. 14
  15. 15. Consider a tolling provision:o Time for non-solicit/non-compete is tolled during the period of any breach.Provision clarifying that the agreement supplements,rather than replaces, legal obligations.Notice of agreement, new employment, change ofaddress. 15
  16. 16. Claim by employee not a defense.Agreement should apply to other positions, regardless ofcompensation.Agreement should apply to subsidiaries/affiliates/successors/assigns. 16
  17. 17. Irreparable Harm:o Acknowledges that breach will cause and entitle employer to seek and obtain injunctive relief.Attorneys’ Fees:o Beware of generic “prevailing party” language (some courts interpret this as a requirement for success on the merits).Liquidated Damages?Forfeiture:o Conditions the receipt of certain benefits/compensation on the promise of non-competition. 17
  18. 18. Most courts will “blue pencil” overly broad restrictions tonarrow restrictions and enforce the remainder of thecovenant.Some states apply a strict blue pencil rule, meaningthese states will cross out, but not rewrite provisions.Employer should indicate its intent to make termsseverable, both by saying so and with severablerestrictions. 18
  19. 19. Choice of law provisions.Choice of venue provisions.Jury trial waivers.Arbitration?o Particularly if confidentiality is a concern. 19
  20. 20. California: Generally non-competes are unenforceable.North Dakota: Non-competes are considered “unlawfuland voidable,” except in sale of business and partnershipdissolution.Oklahoma: Same (can prohibit solicitation of establishedcustomers). 20
  21. 21. Connecticut: Presumption of irreparable harm.Florida: State statute provides a presumptive “pass.”Georgia: Same. 21
  22. 22. Louisiana: Specify parish(es) or municipality(ies).Employer must do business there.Pennsylvania: Considers the circumstances underwhich the employment relationship terminated.Texas: Non-compete is enforceable only when ancillaryto an otherwise enforceable agreement.Virginia: No blue pencil. 22
  23. 23. International Enforcement.The Financial IndustryThe Medical IndustryPlaying Offense and Defense 23
  24. 24. Actually, before employment ends the employer shouldthink about its approach to departing employees:Exit interviewLetter to departing employeeo Must make sense under the circumstancesLetter to competitor hiring employeeo Again, see above 24
  25. 25. Conduct internal discovery, including forensic computerevidence.Do not review an employee’s laptop without expertassistance.Do not immediately wipe and reissue the employee’scomputer or other devices.Litigation. 25
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