In today’s economy, it is common for employees to leave their employers and start their own companies. Whether it is frustration with corporate America or a desire to chase their ultimate dreams, employees who become entrepreneurs can threaten an employer’s competitive advantage. This can be especially problematic when former employees compete against their employers, as a number of legal protections that restrict an employer’s ability to prevent former employees from competing against them.
Essentially, restrictive covenants, generally known as non-compete agreements, have historically been viewed as unfair restraints on trade. Our free market economy favors competition, and courts are more inclined to protect an individual’s right to earn a living. Nevertheless, unfair competition does in fact occur, and employers can take steps to protect themselves against unauthorized use of confidential information.
Employment Agreements and Non Competes
Employers can protect their competitive status if their non-compete (and non-solicitation) agreements are:
Reasonable in time and geographic scope – The restriction cannot be so long that an employee would be out of work for a significant amount of time (e.g. more than six months). While an employer may protect a certain region of established clients, (depending on the type of job), the covenant must not be one that forces an employee to move to another state simply to work for another employer.
Necessary to enforce a legitimate business interest – The non-compete can protect business interests such as confidential information, substantial relationships with existing clientele, and trade secrets. As such, it can prevent former employees from intentionally interfering with the company’s business relationships, and it can include restrictions on hiring current employees for a certain period of time after leaving the company.
No greater than necessary to protect the legitimate business interest. – The non-compete must not punish an employee simply for leaving to work for another employer. Bonuses and commissions earned before the employee’s departure cannot be withheld, and the employer cannot thwart a former employee’s move to another job.
Indeed, protecting confidential information is important. As such, employers may have each employee execute a proprietary information agreement, in which they agree that employees:
- May not use or disclose company confidential information or trade secrets while they work they for the company or after they leave;
- Must return all company property upon their separation;
- Assign all rights and interest in any intellectual property their create or develop to the company while employed by the company; and
- Can only use company resources (e.g., computers, Internet and other property) for the work they do for the company and not for any other purpose.
If you have questions about protecting proprietary information or establishing non-compete agreements, an experienced employment law attorney can advise you. Call us for a free and substantive consultation at 858-535-1511 or contact us to schedule an appointment.