Imagine if you could jump-start your business by accessing your competitor’s top customers and information about those customers’ purchasing histories. While that information could give you a significant advantage in competing for those customers’ business, the icing on the cake would be to also hire your competitor’s salesperson who has developed the trust and confidence of all their customers.
Now imagine, conversely, that your competitor takes all that from you.
Customer investment
Companies go to great expense to train employees in their business methods, teach them the tricks of the trade that give them an advantage over competition, and then introduce the employees to customers.
Most states recognize that because businesses invest so heavily in developing customer bases and methods of doing business that provide a competitive advantage, they created laws to allow employers to restrict an employee’s ability to take those relationships and knowledge to a competitor. Agreements that allow restrictions on employees’ post-employment conduct are called restrictive covenants, but are more often generally known simply as “non-compete” agreements.
There are three main forms of “non-compete” agreements that can protect a company’s most important business assets. The first, a true non-compete agreement, is a written agreement between an employer and an employee that prohibits an employee from working in competition with the employer following separation from the company. This agreement expressly prohibits an employee from actually working his or her trade, for a period of time.
Most states require the agreement to limit the time period and the geographical scope of the restriction to an area reasonably sufficient to protect the employer from competition, but the employee would be free to work in the profession outside the geographical area.
For example, a cardiologist that is part of a practice located only in Miami, Florida, could be restricted from practicing in some portion of Florida, but the doctor could move to Colorado and start a new practice without violating the non-compete agreement. Some businesses are nation-wide, though, and national non-compete agreements have been upheld by the courts in some industries.
Non-solicitation a variation
The second form of a “non-compete” is actually called a “non-solicitation” agreement. The non-solicitation agreement does not prevent the employee from continuing to work in the same profession following employment, and even allows the employee to join a direct, local competitor, but prohibits the employee from soliciting customers and other employees of the former employer.
The non-solicitation agreement is a much less restrictive prohibition since it theoretically allows the employee to continue to work in his chosen profession.
The key issue that typically arises in disputes over alleged violations of non-solicitation agreements is whether the customers follow the employee to the employee’s new employer on their own, or whether the former employee engaged in solicitation.
Often, the precise wording of the restriction becomes the key to enforcement.
Privileged information
The third form of a “non-compete” is a restriction on the use of confidential information. Most company handbooks or HR policies include a provision that notifies employees that the use of company information is restricted to use for the company’s benefit and not for the benefit of the employee or a third party such as a competitor.
This restriction typically applies both during and after employment, and the post-employment restriction may be unlimited in time. A well-drafted confidentiality provision is enforceable in most states to preclude a former employee from using company information for non-company business.
The key to enforcing a confidentiality provision depends on how the company treats information during the course of business. In order to enforce confidentiality provisions, the company must take steps to maintain company information as confidential and to protect it from disclosure.
Having guidelines to restrict access and use of confidential information is required, as is an explicit effort to consistently enforce the guidelines. Information that is publicly available cannot be considered confidential. But publicly available information that is organized or evaluated to provide a competitive advantage can be protected as confidential.
For example, a list of college fraternity organizations on campuses across America is publicly available and thus not confidential. But a list that includes only those fraternities that have purchased certain products would be confidential.
Many states also follow the Uniform Trade Secret Act, which allows employers to prohibit employees from taking or using company trade secrets following employment. A “trade secret” is a more specific term of art than “confidential information.” To enforce “trade secret” rights and confidentiality rights, the company must take affirmative steps to treat the information as confidential and to limit access and use of the information.
Most states permit some form of non-compete agreement, but the specifics vary greatly from state to state. Almost all states that allow non-compete agreements require the agreement to be in writing and signed by the employee, and must be reasonable in terms of geographical scope and for a reasonably limited time.
Some states allow longer periods of restriction than others. Many states allow an employer to enter a non-compete agreement with an existing employee, but require the employer to provide something specific in return for the non-compete agreement such as a salary increase or other additional compensation.
Other states allow continued employment to be sufficient consideration for requiring a non-compete. You should check with an attorney in your state to determine what your state’s requirements are. And, if you have offices in multiple states, you must ensure compliance with the laws where specific employees work to make sure the agreements are enforceable in those states.
Mark A. Romance is a shareholder in the Miami office of Florida law firm Richman Greer, where he focuses his practice on commercial and complex litigation. He has significant experience in contract litigation, real estate, employment, product defect, non-compete, trade secret, intellectual property, and estate and trust litigation. He may be reached at [email protected]
