Mr. Slate, the owner of Bedrock Quarrel and Gravel Company, would never invite his competitors to dinner and share his latest trade secrets or confidential proprietary information with them, nor would he introduce them to his best employees and customers.
Messrs. Flintstone and Rubble, his employees, have developed friendships with Bedrock’s customers; they know Bedrock’s trade secrets, its best employees, which customers buy the most gravel, and who pays on time.
If Flintstone and Rubble leave Bedrock, can Bedrock prevent Flintstone and Rubble from working for a competitor and sharing Bedrock’s trade secrets and proprietary information? Can Bedrock stop Flintstone and Rubble from soliciting Bedrock’s customers and employees after they leave Bedrock?
Trade secrets are protectable, if they truly are trade secrets under state law, without the requirement of a written contract. But a written contract is required to prevent post-employment competition, solicitation and use of information that may be proprietary that does not rise to the level of trade secrets. That contract must contain non-compete, non-solicitation and nondisclosure/non-use clauses.
These agreements need to be supported by valid, legal, consideration. In exchange for the future benefits of employment (payment, customer contact, learning an industry), the employee agrees to refrain from the prohibited conduct for a period of time after employment ends. The covenants should be entered into as early as possible in the employment relationship.
The covenant could even prevent an employee from working for a competitor or engaging in a competing business after leaving the current employer. These types of promises are known as “non-compete” agreements.
Bedrock would need to demonstrate to a court that these clauses are necessary to protect its business, and that they are not being used to restrain trade and competition. Bedrock would also need to show that the restrictions are reasonable in scope and duration.
A reasonable duration could span months or in some cases years. Coupled with the sale of a business, the restrictions imposed on the seller might be greater than those imposed on a former employee.
Depending on where the employer did business, a reasonable geographic region would be defined as a distance from the employer’s offices, or by county, state or even country.
Courts can be hesitant to prevent a person from working in their chosen field; but courts should, even though they won’t always, uphold reasonable restraints. Threading that needle can be challenging, especially because each jurisdiction may have its own standards for what is considered reasonable and the answer to that question is fact driven. It pays to consult counsel when drafting these agreements.
Non-disclosure agreements—promises not to share the company’s trade secrets or other proprietary information—must define what type of information is protected, from what use, and for how long. The employer must be prepared to show the information is confidential, or that it rises to the level of a trade secret, a higher bar than merely being confidential.
Non-disclosure agreements should have a duration that matches the length the information is considered confidential or a trade secret.
Finally, these agreements can impact the price a buyer is willing to pay for a business under the theory that a business that can protect its most valuable assets and know-how from its own employees and customers, is much more valuable than one that cannot.
If you would like help writing restrictive covenants for your business, or would like to know whether the employment agreement you are currently using is enforceable, please contact Jim Astrachan at 410-783-3520 (email@example.com), Chris Lyon at 410-783-3547 (firstname.lastname@example.org) or Elizabeth Harlan at 410-783-3528 (email@example.com).