One could argue that a company’s intellectual/proprietary property walks out the door every day when its employees leave the building. The information that is entrusted to a company’s employees is its lifeblood. All too often, however, start-up companies do not do enough to protect their own intellectual property and customer goodwill after their employees leave the company, or even leave the building.
Unfortunately, some companies take a superficial approach to this critical issue. Many emerging companies use a standardized offer letter and intellectual property agreement, focused on non-disclosure of information, assignment of inventions, and, in some instances, non-competition and non-solicitation restrictions. As a starting point, this may suffice, but planning and vigilance are necessary to ensure that companies are in an optimal position to enforce such agreements down the road.
Companies should give careful thought to tailoring restrictive agreements to particular employees or job classes, rather than using a boilerplate agreement provided to many categories of employees, as a more focused, narrowly tailored agreement is more likely to be enforced in court. One size does not fit all.
Companies should also consider defining what they consider to be “competitive” activity rather than simply barring employees from joining any employer that “competes” with the company.
Companies should also give careful thought to defining what they consider to be confidential, proprietary information, beyond the typical (and important) boilerplate about “inventions and developments, customer lists, business plans, etc.”
Companies should be mindful of using a “one-size fits all” strategy when they have locations, employees, or independent contractors in different states. Non-compete agreements for California employees will not be enforced to the same extent as non-compete agreements for New York employees. State law can vary significantly with respect to these matters. As a result, companies must consider formulating agreements tailored to the specific laws of the states in which they have employees.
Companies should also be careful about the process by which these agreements are signed. For instance, when a company fails to have a new hire sign a non-compete agreement at the time the employee is hired, then there is a significant argument that the non-compete agreement is not enforceable because of lack of consideration. This can be true even where an employee signs the non-compete agreement just a week after being hired!
Ultimately, when attempting to enforce a restrictive agreement in court, the company will be arguing that its confidential information is at risk based on the former employee’s actions; agreements should be drafted to maximize the likelihood that this argument will be accepted.
So, what are some things a company can do to ensure enforcement of restrictive covenants and protecting valuable proprietary or confidential information? Here are a few steps you as a business owner can take:
- regular dissemination of a confidentiality policy,
- education and training of employees on intellectual property issues,
- restricting access (via passwords, locks, etc.) to sensitive information to those employees who need such access,
- and labeling confidential documents (both hard copy and electronic),
- create an exit process (a termination process) such as the consistent use of a termination checklist that reminds workers of their obligations under existing policies and agreement.
- create an exit process that ensures the company immediately collects company property such as laptops, PDA’s, storage media (discs, drives) and hard copies of documents. If the company has any suspicions about the outgoing employee’s conduct and/or intentions, immediate consideration should be given to actually investigating the employee’s computer-related activities prior to his or her departure.
- In many instances, retention of a third-party data recovery expert may be advisable both because of the technical challenges involved in investigating electronic activity and because of the need to preserve evidence of that activity,
- Consider implementing an IP protection process such as communicating to your former employee and his or her new employer about the existence and continued applicability of the employee’s restrictive covenants and the company’s expectations about compliance with those promises.
Taking all of these steps will significantly improve a company’s chances of protecting its intellectual/proprietary property especially following a valued employee’s departure.