Non-Compete Agreement Tips for Partners, Executives, and Employees

In this post, I continue the discussion about non-compete agreements in Connecticut.  This time, I focus on the employee side.  Here are 5 things to think about when leaving employment if you have a non-compete agreement.

 

  1. Do not believe water cooler experts.  Many employees come to believe what they hear at the water cooler about non-compete agreements.  The typical comments include: “Those things are thrown out of court,”  “John Smith had one of those, and he beat it in court.”  The reality is, some non-competes will be upheld in court in Connecticut, and others will not.  There is no bright line test.  Every case is unique and there are too many factors to cover in one blog post. 
  2. Get help sooner rather than later.  The biggest mistake employees make is failing to get an experienced attorney’s review of an employment contact BEFORE planning to leave.  Examples of these agreements include non-competition agreement, non-solicitation agreement, or confidentiality agreement.  I emphasize “experienced” because the law surrounding non-compete agreements and unfair competition is constantly changing.
  3. Develop an exit strategy.  Leaving without a plan is not a good idea. Employees need a plan that includes understanding the parameters of the agreement and mitigating the risks of breaching it.  I have seen clients lose sleep, jobs, and thousands of dollars because there was no plan in place.  I will offer more on exit strategies in a later post, but some ideas include negotiation with your existing employer, finding holes in the contract, modifying employment decisions to mitigate risks, and taking a wait and see approach.   

4. Be mindful of confidential information.   The idea here is to minimize your exposure to a lawsuit for theft of confidential information or misappropriation of trade secrets.  Determining whether information is protected as confidential or a trade secret might be a complex analysis.  The same can be said for improper use of such information.  Further, there could be valuable information that an employee is entitled to use but it depends on many factors. 

 

5. A written contract is not the only issue.  In the context of leaving an employment position or partnership, Connecticut recognizes causes of action that do not require a contract.  These include breach of the duty of loyalty, breach of fiduciary duty, misappropriation of trade secrets, computer crime, civil theft, and unfair trade practices.  Your exit strategy needs to consider all of these factors, and not only the contractual agreement.  

Tips On How To Reduce The Risk Of Intellectual Property Theft

 In my last post, I wrote about the risks facing businesses when there is a departing employee.  It can be fairly argued that in the next 3 years your average business will have to deal with a disgruntled, departing employee.  The employee will have had access to confidential information in digital form.  Studies have shown that greater than 50% of disgruntled employees and 90% of IT employees will take something.  So what can a business do to protect itself from theft of clients, confidential information, and trade secrets?  Here are a few tips:

1.Strong Contracts.  I often say that Legal Zoom = courtroom doom.  Many folks go to online websites to get cheap, low cost non-compete or confidentiality agreements.  There are circumstances where you can get a decent contract that will help your business from these online sites.  However, too many times I have reviewed the low cost, canned contract of a client and found significant problems with the contract.  If you want to have a contract that will have a better chance of standing up in court, you are best served by hiring an attorney well versed in these areas.  Relying on a form contract from a website is not recommended.

2.Strong Policies.  Any workplace policy should include strong electronic monitoring policies prominently posted in break rooms and in the employee handbook.  Ideally, the policy will spell out that the company can and will monitor the company owned computers and all communications and information stored on them.  You also want to have strong password policies, auditing of file access, and guards against deletion. You also should seek to have visibility by your IT department for all activities on work networks.

3. Intake Checklists.  Upon employee intake, your business will want to have a checklist that documents all the necessary items covering confidential information.  You will want to document all the devices issued to the employee, review the details of the contract (non-compete or non disclosure), and review all policies of electronic monitoring.

 4. Internal Procedures.  Essentially, what a business needs to have is an enterprise fraud management plan.  This would include security related technologies for the electronic information and data stored by the company.  You will want to include mobile device management.  Your plan will want to classify data and restrict access based on the classifications.  Your plan will want to include auditing and tracking of data.  

 

5. IT Security Checklist.  This is a checklist designed for the IT department when an employee departs.  This will include shutting down access to the former employee immediately.  The list should also include an inventory of the employee devices, evidence preservation, and possible involvement of a forensics expert.  There should always be a concern about possible spoliation of evidence when attempting to preserve, inspect, or copy electronic data.  Early involvement of an expert in computer forensics is recommended.

6. Strong Exit Interview.  A good exit interview can go a long way towards understanding if the departing employee is a risk for theft or use of confidential information.

7. Severance.  To give or not to give?  A fair severance agreement can be used to create ongoing and continuing obligations for the departing employee with respect to confidential information or intellectual property.  Also, if you failed to have a good contract in place during employment, a severance agreement is a good way to correct previous mistakes in the employment contract.  Further, in some circumstances, a fair severance agreement can reduce the level of hostilities and thereby reduce post employment risks.