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Do You Protect Your Company’s Trade Secrets?
Picture this: an employee emails you on Sunday morning telling you that he or she resigns effective immediately. This employee has had access to company trade secrets which, in the competitions’ hands, could cripple your business. You find out that this employee has been recruited by a local competitor to start immediately.
What do you do? Do you have a restrictive covenant in place? If so, is it enforceable? ARE YOU PROTECTED?
I have been in the position of being the company an employee leaves and the competitor an employee joins. My experience has shown me that having a well written enforceable restrictive covenant could mean the difference between protecting your business and handing all your top secrets to a competitor.
So what is a trade secret? A trade secret is information that:
1. Has economic value to your company; 2. Is based on its secrecy (not publicly available); and 3. Is protected by reasonable efforts.
Each state’s court may have a different threshold so it is important to know the requirements for your location. Some examples include:
> Production/technical methods and processes > Research and analysis > Strategic plans > Customer information
One way to protect your trade secrets is through a restrictive covenant. This is a provision that restricts an employee’s conduct during employment. There are three primary types:
1. Covenants not to compete 2. Covenants not to solicit 3. Covenants not to disclose confidential information
To be a valid restrictive covenant it must be:
> Reasonably/narrowly tailored; > Protect legitimate business interests; and > Supported by adequate consideration
So what can you do as an employer to get the most from your restrictive covenants? Start by determining if you need a non-solicitation, non-compete, non-disclosure or all of the above. Next you should make sure the covenant you’ve put in place is enforceable under state law.
We are currently working with a client to recruit a new sales team member. One of the candidates has a restrictive covenant and shared it as part of the screening process. It stated that he could not for a period of 24 months work for any competitor within 768 miles of his current employer. Do you think this would be enforceable? It may not be as the courts could find that 768 miles is not reasonably/narrowly tailored.
Some other suggestions when putting together a restrictive covenant:
> Secure restrictive covenants during pre-hire negotiations > Draft covenants with enforcement in mind > Take immediate action if you find that an employee has violated the agreement > Make sure both the employee and the designated company representative signs the agreement > Do not breach the agreement
What it all boils down to is you work really hard to build your business. Loss of your company strategy, customers, process and procedures could cause great detriment to the business if lost so you have to protect it. It is my experience that most employees who resign rarely just quit on the spot. They usually have thought about it, looked for work and bided their time until a new job came along. During these weeks or even months, they have access to critical information that you have a right to protect.
The best way to protect your information is incorporate these protections into your operating procedures and be sure to keep trade secrets under lock and key with limited disclosure.
This post is informational. We believe you should consult with a legal advisor who can help you ensure your restrictive covenant is enforceable. It only takes a few simple steps to protect your business and it is worth the investment!
Source: Employment Law for Businesses – Easy Steps to Protect Your Business Protecting Your Trade Secrets & Maintaining a Competitive Advantage Presented by E. Jason Tremblay, Arnstein & Lehr LLP
Melonie Boone, MBA, MJ, PHR, Founder of Boone Management Group Inc., is a business strategist and executive leader with comprehensive experience in business optimization and human resources strategy. She works as a member of senior management to optimize strategic planning in support of organizational growth, bringing proven results in business strategy advising and directing human resources operations in diverse organizations across multiple states. Contact Melonie directly: firstname.lastname@example.org.
Submitted by Small Business ... on Mon, 08/13/2012 - 4:04pm