Covering Your Assets: How to Legallyand Effectively Protect Your Trade Secrets, Customers, and Employees Presented by: Phillip B. Russell Ogletree, Deakins, Nash, Smoak & Stewart, P.C. 100 N. Tampa Street,Suite 3600 Tampa, Florida 33602 (813) 221-7265 (dd); (813) 966-6598 (cell) firstname.lastname@example.org
Something to Consider •When an employee leaves your company and takes customers, trade secrets, confidential information, other employees, or all of these, •How does that make you feel?
Something Else to Consider•This is not about how you feel!!!! –Ego and pride are your worst enemies.•Protecting your business assets is a business decision that utilizes the law as your protection.•Like all other business decisions you make, you must have a plan!
YOUR SPEAKER •Employment lawyer for businesses only – Since 1995 •HR Florida’s Legal Counsel •Member of –HR Tampa –Big Bend SHRM –SHRA •Nationally recognized speaker on workplace legal topics •Runs adventure races!
Our ROI’s for Today 1. Understand Florida’s statutory and common laws regarding employees’ duty of loyalty and unfair competition. 2. Draft and implement non-solicitation, non- disclosure, and non-compete agreements. 3. Implement a powerful enforcement and litigation strategy.
The Current “Mood” •Recent Right Management Polls –Out of 1,400 workers, 84% planned to look for a new job in 2011 –Out of 3,000 workers, many had been approached by another company, and 56% of those with managerial titles reported being contacted by other employers –Out of 330 employers, 3 of every 4 had employees working remotely
What Are Restrictive Covenants? •Agreements with an employee not to engage in certain post-employment activities.
Five General Types of Covenants •Non-Compete: Don’t Work for the Competition or Open a Competing Business •Non-Solicitation: Don’t Solicit our Customers •Non-Disclosure: Don’t Disclose our Confidential Information or Trade Secrets •No Pirating: Don’t raid our Employees •Invention Assignment: Intellectual Property belongs to the Company (trailer clauses)
Restrictive Covenants•PUBLIC POLICY –Generally disfavors restrictive covenants as a restraint on free trade•BUT –Limited statutory exception is to protect legitimate business interests –Section 542.335, Florida Statutes
Florida Statutory Requirements •Reasonable in Time •Reasonable in Area •Reasonable in Line of Business •In writing and signed by the person against whom enforcement is sought •Plead and prove one or more legitimate business interest (LBI) •Restrictive covenant is reasonably necessary to protect the legitimate business interest(s) justifying the restriction •Supported by valuable consideration
Legitimate Business Interests (LBI) 1. Trade Secrets, § 688.002(4) 2. Valuable confidential business or professional information that otherwise does not qualify as a trade secret. 3. Substantial relationships with specific or existing customers, patients, or clients 4. Customer, patient, or client good will associated with (a) ongoing business or professional practice by way of a trade name, service mark, or trade dress, (b) a specific geographic location, or (c) a specific marketing or trade area 5. Extraordinary or specialized training.
Extraordinary or Specialized Training •Goes beyond what is usual, regular, common, or customary in the industry •Employee attains a unique skill or advanced degree or sophistication in an existing skill •Will vary from industry to industry and requires a factual determination by the court •Following directions on a box or reading the manual are not sufficient! •Hiring persons with little or no experience and putting them through extensive training would strongly suggest extraordinary or specialized training
Legitimate Business Interests •“Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.” –Fla. Stat. § 542.335(1)(b)
Defenses •Overbroad •Overlong •Otherwise not reasonably necessary to protect the established legitimate business interest(s) •The company seeking enforcement no longer continues in business in the area or line of business that is the subject of the action, but only if such discontinuance is not the result of a violation of the restriction.
Defenses•Other pertinent legal and equitable defenses –Prior Breach by the Employer (e.g., failure to pay) –Statutory Violation by the Employer (e.g., FLSA) –Selective Enforcement•Public health, safety, and welfare (extremely narrow)
Time Frame Presumptions •If not based on the protection of the trade secrets, restrictive covenants are: •Presumptively reasonable –any restraint 6 months or less in duration •Presumptively unreasonable –Any restraint more than 2 years in duration
Time Frame Presumptions •If based on the protection of the trade secrets, restrictive covenants are: •Presumptively reasonable –any restraint 5 years or less in duration •Presumptively unreasonable –Any restraint more than 10 years in duration
Prohibited Defenses •Individualized economic or other hardship •Generalized public policy assertion –Public policy defense must specifically articulate the applicable public policy and the court must find the public policy substantially outweighs need to protect the legitimate business interest(s)
How Must Courts Construe RestrictCovenants? •In favor of providing reasonable protection to all legitimate business interests established by the enforcing party •Cannot use any rule of contract construction that requires a narrow reading against the restraint of the drafter
Remedies•Injunctive Relieve – violation of an enforceable restrictive covenant creates a presumption of irreparable harm for injunctive relief –Temporary Injunction w/ bond –Permanent Injunction w/ bond•Damages•Attorneys’ Fees and Costs –Prevailing Party –Even if no contractual provision or a one-sided contractual provision
Other Claims •Breach of Duty of Loyalty •Trade Secret Misappropriation •Computer Fraud and Abuse Act (federal statutory claim) •Civil Theft
Other Claims – Against New Employer •Tortious Interference –Suing employee’s new employer for causing employee to violate a valid agreement –Usually must make new employer aware of restrictions and give them a chance to stop (Need to show intent)
Drafting Agreements and RestrictiveCovenants •Stand-alone Agreements, or –“Business Protection Agreement” •Provisions in Employment Agreement –Typically for executives or high-end sales positions •Avoid “off the shelf” forms; customize covenants and agreements by position or type of position
Important Provisions - Introductory •Identify the parties – Employer should also include related entities, successors, and assigns •Describe the company’s line of business and geographic areas in which it does business, but allow for changes •Describe the employee’s line of business and geographic scope covered by employee, but allow for changes •Identify the consideration (e.g., employment or continued employment)
Important Provisions – LegitimateBusiness Interests •Articulate the specific LBI’s sought to be protected •Emphasize the employer’s investment in its employees, customers, trade secrets, confidential information, and business strategies and plans
Important Provisions – RestrictiveCovenants •Non-disclosure of Trade Secrets or Confidential Information –Specifically define trade secrets or confidential information; generic terms are not sufficient –Time period w/ extension clause –Return of property, including devices and files –Include disclosure and use
Important Provisions – RestrictiveCovenants •Non-Solicitation of Customers –Passive and active solicitation “solicit or accept business from” –Time period with extension clause –Customers with whom employee had substantial contact
Important Provisions – RestrictiveCovenants •Non-Solicitation of Employees –Passive and active solicitation “solicit or accept employment of” –Time period with extension clause –Employees with whom employee had substantial contact
Important Provisions – RestrictiveCovenants •Non-Competition –Time frame with extension –Geographic scope –Line of business •These are NOT preferred by the Courts, so they must be drafted very carefully and enforcement expectations must be minimal. •“Everyone has a right to earn a living doing what they do.”
Important Provisions - Remedies •Temporary Injunction •Permanent Injunction •Damages •Liquidated Damages •Attorney’s fees and costs •Waiver of Jury Trial?
Important Provisions – Other Legal •Governing Law •Jurisdiction •Venue •Severability of unenforceable items –Blue pencil or severability clause •Modification •Assignment •Construction •Waiver of prior breach •Employment At Will Has Not Changed!!!!
Who Can/Should Be Subject toRestrict Covenants? •Current or former employees, independent contractors, or agents •Best practice – executives, sales, technical, engineering, and similar positions: –Anyone who knows the “Coca-Cola Formula” of your business –Anyone who has relationships with your customers –Anyone who could recruit your talent •But, not everyone in your business because you would dilute your LBI argument
Choice of Law and Venue Issues •Covenants can be rendered unenforceable if they are: •Invalid under chosen state law; or •contrary to home state’s public policy •Venue – Choice of venue and venue transfer issues –Personal jurisdiction –Minimum contacts to Florida
New Enforcement Issue – Social Media •Can you include social media sites in your agreements? •Can you require a former employee to de- connect from social media site contacts they have? •Other issues?
Trade Secrets •THE BASICS –Some information should be kept secret –Uniform Trade Secrets Act (“Act), adopted by many states, including Florida –Purpose is to “prohibit misappropriation of a company’s trade secrets and provide remedies to those that have been harmed”
Trade Secrets •PROTECTING TRADE SECRETS – DEFINITIONS –Misappropriation: Knowingly taking and/or possessing trade secret information by improper means; or Disclosure or use of company’s trade secret without consent by someone who acquired the information knowing it was to remain secret.
Trade Secrets •PROTECTING TRADE SECRETS – DEFINITIONS –“Trade Secrets” Information; That derives independent economic value; Which is not generally known or readily ascertainable by “proper” means by others who would economically benefit from their use; and Which is the subject of reasonable efforts to be kept secret and secure from disclosure
Trade Secrets•PROTECTING TRADE SECRETS – DEFINITIONS –“Information” can include both technical and non-technical items such as drawings, financial data, or lists of actual or potential customers or suppliers. Useful; Not Generally known; and Provides a competitive advantage (has monetary value).
Trade Secrets •PROTECTING TRADE SECRETS – DEFINITIONS –“Reasonable Efforts to Maintain Secrecy” Must show that steps have been taken to prevent disclosure – not just “private” Mark info as “CONFIDENTIAL” Computer passwords Departing Employees
Trade Secrets •REMEDIES FOR VIOLATIONS OF ACT –Injunctive Relief – preliminary and permanent –Monetary damages Actual Loss Compensation for “unjust enrichment” Royalties Attorneys fees –Respondent Superior
ENFORCEMENT STRATEGY•This is a business decision, so like other business decisions, have a strategy and plan in place
Your Plan•Draft effective restrictive covenants•Consistent agreements for similar positions•Review at least annually•Discuss with new hires or when agreements are revised•Keep signed copies in a secure place•Enforce consistently for similar positions – or know why you are not going after a particular person!
Your Plan •For all terminations, send a reminder letter with a copy of the agreement •For all possible violations, send initial cease and desist letter •Follow-up on time; don’t let it sit •Review social media site activity •Preserve all evidence, physical and electronic, to prove the violations
Your Plan •Thoroughly investigate and gather all evidence of violations •File the lawsuit –Supported by very detailed factual allegations; the more detail, the better the enforcement chances –Do NOT file an enforcement action based only on suppositions and suspicions; remember, attorneys’ fees and costs go both ways!
Your Plan •File a motion for temporary injunctive relief –Supported by detailed affidavits and documentary evidence –Set a hearing as soon as possible •Conduct the hearing –This is where most cases are won or lost, so prepare like you are going to trial!
Your Plan•Post-hearing –Losing party typically wants to resolve the case with some injunctive or other relief•Do You Continue? –Depends on the evidence
Your Plan – Final Point •These are expensive and risky cases to litigate. •Best way to manage the litigation risk and expense is to have solid agreements with consistent enforcement so employees know you will invest your time and money in going after former employees who violate their agreements.
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