Does your business have a right-hand man or woman? You know . . . the person who not only has great skills and experience, but also handles the company’s sensitive information and enjoys terrific relationships with your clients or customers? If so, this “key employee” is an important asset – and, perhaps, a future threat to your bottom line. If you must rely on a key employee, you also must take steps to prevent her from stealing your secrets and clientele.
As I explained in detail in a previous post, you should make sure that no one but key employee(s) can access valuable information such as confidential customer lists, secret price lists, and business strategies. In addition to the obvious reasons to restrict access, your efforts could later help you prove that the information qualifies as protectable “trade secrets” under state law. If you can convince a court or arbitrator that the employee unfairly put one of your trade secrets to her own use or shared it with a third party, you might win a claim for misappropriation.
In addition, you might consider entering into one or more “restrictive covenants” – such as a confidentiality agreement, a non-solicitation agreement, and / or a non-compete agreement – with the key employee. A restrictive covenant is a type of contractual agreement, and thus would require each party to do something for, or promise something to, the other party.
A well-drafted confidentiality agreement will, among other things, clearly delineate the type of information that is considered confidential and prohibit the employee from using the information against you or revealing it to a third party. In addition to contractually binding the employee, the agreement could have the effect of bolstering your “trade secret” argument.
Non-Solicitation and Non-Competition Covenants
You might also decide to have the employee agree to a non-solicitation and / or non-competition requirement that would be in effect both during employment and for period of time afterwards. A non-solicitation agreement (or a non-solicitation clause that’s part of a larger agreement) might prohibit the employee from (i) seeking business from your clients, (ii) seeking to hire your employees away from you, or (iii) a combination of both. The non-competition requirement, in contrast, would forbid her from engaging in the same type of business as yours for a period of time in a particular geographic area.
Please note, however, that courts do not automatically enforce non-solicitation and non-compete agreements. In an effort to protect an employee against unfair terms, a court will sometimes void such an agreement or reduce its scope. With regard to a non-solicitation agreement, for example, the court might shorten the time period that the restriction is in effect. When faced with a non-compete, the court might shorten the time period and / or shrink the geographic scope. (For example, the court might reduce a statewide, 2-year prohibition to one that applies only to certain nearby counties and lasts only 18 months.) Such a decision is often left to the court’s discretion and depends on the particular facts of each case.
Regardless of possible enforcement issues, a restrictive covenant is often worth considering. The mere existence of the agreement often prevents the very behavior that it seeks to address. And even if the agreement doesn’t achieve the desired chilling effect, it might convince a court to award you the legal relief you need.