Tag Archives: confidentiality agreement

November 17, 2014

When Key Employees Go To A Competitor

Wiletsky_MBy Mark Wiletsky 

Your executives and top salespeople have access to your most valuable business strategies, sales contacts, growth plans and innovations.  What do you do when one (or more) of your key employees leaves to work for a competitor?  Without the correct agreements in place to protect your proprietary information, you may have little recourse. 

Don’t Rely on a Court to Protect Your Business Information 

When a key employee leaves to go to a competitor, the former employer often scrambles to seek a court injunction to prevent the employee from working for the competitor and to stop the employee from disclosing or using trade secrets and confidential information.  But courts are not always willing to prevent an employee from moving on, especially if the company does not have a reasonable and otherwise enforceable non-compete agreement in place. 

In a recent case in Colorado, a high level executive used his company-issued laptop to send an email containing his business contacts to his personal email address as he began negotiating to work for a competitor.  He also downloaded some business information onto a personal external hard drive and thumb drive and kept physical copies of certain business documents in a box in his car.  About three weeks later, the competitor hired the executive. 

There was no evidence that the competitor requested or obtained from the executive any confidential information, the executive had signed only a nondisclosure agreement with his former employer, and the executive agreed to an injunction preventing him from using his former employers confidential information or trade secrets.  Nevertheless, the former employer asked the federal court in Colorado to prevent the executive from working as the competitor’s President for one year, arguing that he had threatened or would inevitably disclose its trade secrets in his new job.  Despite the executive’s decision to transfer information to his personal devices just before leaving the company, the court denied the company’s request, citing a lack of evidence that the executive had or would use his former company’s trade secrets to its competitive disadvantage.  Cargill Inc. v. Kuan, No. 14-cv-2325 (D.Colo. Oct. 20, 2014).  The judge noted that enjoining the executive from working for the competitor would, in effect, afford his former employer something it could have obtained or bargained for: a covenant not-to-compete. 

Employment-Related Agreements to Consider 

Keeping proprietary information confidential can be key to the future prosperity and competitiveness of your business.  You can help protect that information from walking out the door by having key employees sign one or more of the following agreements: 

  • Non-compete agreement: the restriction on working for a competitor must be reasonable in time and geographic scope, and comply with other applicable state law requirements;
  • Confidentiality agreement: requires employees to keep secret your company’s trade secrets and other proprietary information;
  • Non-solicitation agreement: restricts an employee from soliciting customers (who must be defined in the agreement) or from soliciting other employees to go to work elsewhere; and
  • Assignment of inventions: any products, inventions, innovations and other developments created during the worker’s employment are assigned to and owned by the company. 

Depending on the circumstances, you may want to incorporate some or all of these provisions into a single agreement, and you may need to address varying state law requirements (or choice of law and venue issues) depending on where your employees are located.  However, be careful to tailor your agreements to each type of key employee.  For example, the non-compete for your CEO or general manager may need different restrictions than a similar agreement for your Regional Sales Manager.  And be sure not to use a non-compete with all employees—including lower level ones who have no need for such post-employment restrictions—because it will diminish your justification for asking a higher-level employee to sign the same or similar agreement. 

The bottom line is that you need to be proactive in protecting your vital assets, including your confidential information and your key employees.  Taking steps now to implement proper agreements will go a long way in protecting your business down the road when key employees decide to depart.

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February 20, 2014

EEOC Challenges Separation Agreements

By Mark Wiletsky 

If you use standard separation agreements to secure a release and waiver of claims from employees who are laid off, fired, or who otherwise threaten a claim, you might want to review your agreement.  In a lawsuit filed recently in Illinois federal court, the EEOC alleges that a company with national operations interfered with its employees’ right to file charges with the EEOC and state fair employment practices agencies by conditioning the employees’ receipt of severance pay on signing an overly broad separation agreement. 

According to the EEOC, five separate paragraphs (which are commonly found in separation agreements) are improper: 

  • Cooperation: Employee agrees to promptly notify the Company’s General Counsel by telephone and in writing if the employee receives a subpoena, deposition notice, interview request or other process relating to any civil, criminal or administrative investigation or suit.
  • Non-Disparagement: Employee will not make any statements that disparage the business or reputation of the company or any of its officers or employees.
  • Non-Disclosure of Confidential Information: Employee agrees not to disclose to any third party or use for him/herself or anyone else Confidential Information without the prior written authorization of the company.
  • General Release of Claims: Employee releases company for any and all causes of action, lawsuits, charges or claims, including any claim of unlawful discrimination, that the employee may have prior to the date of the agreement.
  • No Pending Actions; Covenant Not to Sue: Employee represents that he/she has not filed or initiated any complaints prior to signing the agreement and agrees not to initiate or file any actions, lawsuits or charges asserting any of the released claims. 

Disclaimer Allowing Workers to Bring Claims to the EEOC Not Enough 

Recognizing that employers may not prevent workers from filing charges with the EEOC or participating in EEOC or state agency investigations, the paragraph containing the covenant not to sue contained a sentence stating “[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.”  In its complaint, the EEOC says this disclaimer is insufficient as it is contained in only one of the paragraphs that contain limits on the employees’ rights. 

What does this mean for employers? 

It’s important to remember that the Court has not agreed with the EEOC’s allegations—and, in fact, it might reject them outright.  Regardless, the risk of such actions is enough to justify a closer look at your standard separation or release agreement.  Even an agreement that has been repeatedly reviewed and revised can likely be improved for clarity.  Make sure the agreement is understandable, does not contain excessive “legalese,” and it should not contain provisions that interfere with an employee’s right to file a charge with the EEOC or state agency.

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