Restrictive Covenants in Employment: Crafting Enforceable Noncompete - - PowerPoint PPT Presentation

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Restrictive Covenants in Employment: Crafting Enforceable Noncompete and Non-Solicitation Agreements

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific WEDNESDAY , OCTOBER 14, 2015

Presenting a live 90-minute webinar with interactive Q&A Mark A. Saloman, Partner, FordHarrison, Berkeley Heights, N.J. Paul E. Starkman, Partner, Pedersen & Houpt, Chicago Jennifer M. Trulock, Partner, Baker Botts, Dallas

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Non-Competition mpetition Ag Agre reeme ment nt for r Rest stricti rictive ve Cove vena nants nts in in Em Empl ployment: ment: Cra rafting fting En Enforce rceable able Non-Compet Compete e and nd Non-Solicitation

• licitation Ag

Agre reem emen ents ts

Stafford CLE Webinar October 14, 2015

Paul E. Starkman Pedersen & Houpt

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 Employment Non-Competes  Non-competes for sellers of businesses

• Longer duration and broader geographic scope

 Non-competes between businesses  Non-competes for employees of acquired

companies

• Asset sale v. stock sale
• Assignment clauses

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 Stand-alone documents  Included in other agreements:

• Employment Agreements
• Stock Option Agreements
• Long-Term Incentive Plans
• Severance Agreements

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 Protectable Business Interests

• Confidential Information
• "Near Permanent" Customer Relationships

 Long-term contracts v. competitive bidding  Fungible products v. custom-built products

• Goodwill

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 Defining the Employer

• Subsidiaries, parents, affiliates included?
• Successorship
• Assignability

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 Type of Employee

• Specialized knowledge
• Customer relationships

 Level of Employee

• Higher level employees
• Sales and R&D employees
• Lower level employees

(the Jimmy John's controversy)

 Independent Contractors  Multi-State Employers (location of employees)

• Choice of Law clause
• Forum selection clause

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 Define “Competing Business”

• Should be based on definition of Employer's current

and prospective business (that it has taken substantial steps to engage in).

• List of competitors?
• Beware of circular definitions

 Example: "Competing Business" means all businesses that compete with Employer

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 Geographic Restrictions

• Tailor to area in which Employer conducts business
• Tailor to area in which Employee worked?
• National/Global non-competes
• Using customer based restrictions instead of geographic

restrictions

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 "Working for a competitor in the same or

similar capacity"

• Courts have refused to enforce non-competes that

preclude former employees from working for a competitor "in any capacity"

 Change in duties

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 Duration

• Time to train replacement
• Alleviate unfair advantages
• Statutory presumptions of enforceability (Florida,

Louisiana)

 Extendor Clauses

• Beware of state law on enforceability (Wisconsin)

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 Compare with Traditional Non-Competes

• Garden Leave
• Deferred Compensation Arrangements

 Similar Analysis in Some States

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1) Potential public relations nightmare. 2) Invalidation of one non-compete may invalidate all of employer's non-competes. 3) Uniform Unfair Trade Practices Act violation? 4) Texas employee awarded $750,00 in attorneys' fees for

• verboard non-compete.

5) Termination for refusing to sign invalid non-compete resulted in employer $1.2 million liability(in California, of course).

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Paul E. Starkman Pedersen & Houpt 161 North Clark Street Suite 2700 Chicago, IL 60601-3242 312-641-6888 pestarkman@pedersenhoupt.com

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RESTRICTIVE COVENANTS IN EMPLOYMENT:

CRAFTING ENFORCEABLE NONCOMPETE

AND NON-SOLICITATION AGREEMENTS

FordHarrison LLP Presented by Mark A. Saloman, Esq. Co-Chair, Non-Compete Practice Group

October 14, 2015

PROTECTING YOUR DATA & PEOPLE FROM UNFAIR COMPETITION

• The Scary Truth:

Your most prized assets are unsafe

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ALTERNATIVES TO NON-COMPETE AGREEMENTS: OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

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AGENDA

• Drafting Considerations

& Best Practices

• Non-Disclosure
• Non-Solicitation -

customers

• Non-Solicitation –

employees

• Non-Interference
• Other Options to Protect

Trade Secrets & Good Will

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DRAFTING CONSIDERATIONS – BEST PRACTICES

• Goodwill Assumes

Many Forms

• Trade Secrets
• Confidential

Information

• Client relationships

(created, developed, and fostered through your employees)

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DRAFTING CONSIDERATIONS – BEST PRACTICES

• Goodwill
• Your confidential information / trade secrets

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DRAFTING CONSIDERATIONS – BEST PRACTICES

• What Are Protectable “Trade Secrets”?

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DRAFTING CONSIDERATIONS – BEST PRACTICES

• What Is

Protectable “Confidential” Information?

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OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

• The Non-Disclosure

Agreement

• Confidentiality

Provisions

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DRAFTING CONSIDERATIONS – BEST PRACTICES

• What Else Can A Restrictive Covenant Protect?
• Corporate “goodwill”

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OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

• Non-Solicitation of

Clients/Customers Clause

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IS THE “CONFIDENTIAL INFORMATION” REALLY CONFIDENTIAL?

• Does former employee

have a prior relationship with customer – free to take with him

• Information generally

available to the public (published on website, internet, social media or trade journal)

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OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

• The Employee Non-Solicitation Clause

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OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

• Non-Interference

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OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

• Notice and Garden Leave Provisions
• Paid Consultancy – Transition Arrangements
• Additional Consideration – Golden Handcuffs

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OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

• Forfeiture of Economic Rights (Employee Choice Doctrine)

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OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS

• Clawbacks
• Employee Loans

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OTHER METHODS OF PROTECTION

• Written computer/data

policies and procedures

• Passwords and security

measures

• Limit access – need to know

basis

• Label trade secrets as

“Confidential”

• Conserve your business

relationships

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INITIAL GOALS WHEN HIRING – THE “CLEAN HANDS” APPROACH

• Prevent confidential information of candidate’s prior

employer from coming into your company’s possession

• Keep candidate(s) “clean”
• Identify legitimate interest of current/prior employer
• Trade secret or confidential information
• Customer relationships
• current
• prospective
• Specialized training

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RESTRICTIVE COVENANTS IN EMPLOYMENT:

CRAFTING ENFORCEABLE NONCOMPETE AND NON- SOLICITATION AGREEMENTS

For more information, please contact: FordHarrison LLP Mark A. Saloman, Esq., Co-Chair, Non-Compete Practice Group 973-646-7300 or msaloman@fordharrison.com 973-646-7311 or nj-hotline@fordharrison.com October 14, 2015

Jennifer Trulock Baker Botts L.L.P.

 Return of property  Agreements

• Reimbursement
• Clawback/Forfeiture
• Non-Solicitation
• Non-Compete
• Non-Disclosure
• Intellectual Property

 Exit interview  Reasons for termination  Trade secrets

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 Separation Agreement

• Focus by EEOC on effective releases
• Required by employment agreement?
• Non-disparagement
• Mutuality of obligations
• Litigation/investigation cooperation
• Compliance with restrictive covenants
• ADEA/OWBPA compliant waivers

 Check for data removal and copying

• Look for suspicious behavior

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 Plan the meeting out  Secure property  Remind employee of obligations

• Restrictive Covenants
• Return of Property

 Treat the employee with

respect

Do Not Do This

Telegraph Media, 2013

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 Prepare differently for resignation

• Look for red flags
• Giving information about obligations
• Warnings may be appropriate
• Getting information about next employer

 Post-termination interview important

• Exit interviewer must be consistent on reasons
• Avoid debate or comments on merit of termination
• Inform about post-termination obligations

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 Involve IT

• When to cut off employee access
• Be alert to signs that employee is misusing access
• Remote wiping

 Certification of return of employer property  Computer access

• Ensure employer has User IDs and Passwords
• Discuss LinkedIn profile
• Ownership of social media accounts

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 Documents (hard copies)

• Search at home, car, etc.
• Return all documents

 Information (soft copy)

• Deletion vs. return
• Confirmation of deletion from personal devices
• Permission to search if reasonable suspicion
• Vendor vs. IT department

 What employee may keep

• Employment contracts
• Pay stubs, tax related documents

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 Secure employee possessions promptly  Arrange for a supervised return  Image computer before wiping, especially if

there are red flags

 Quickly see what has been recently

downloaded

 Treat employee respectfully

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 Refusal to participate in exit interview  Suspicious IT findings  Refusal to disclose new employer  Next steps: consider deeper IT dive

• Look for theft of trade secrets
• Determine whether going to competitor

 Next steps: be proactive with clients, co-

workers

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 Confidentiality, Non-Disclosure  Return of Documents and Information

• Certification

 IT Access  BYOD  Preservation of Documents and Information  References

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 Social media policies

• Concerted activity
• Use of company’s name

 Ownership  Account names and passwords  Control account access  Restrictive covenants

• LinkedIn solicitation
• Advising employees

re: continued use

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 Follow your reference policy  Remove employee photo/bio from web site  Pay wages promptly  Pay accrued vacation/PTO if required  Pay bonuses and commissions as required

• Understand forfeiture provisions in contract

 Understand how severance affects

unemployment

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 Trade secret misappropriation  Use/misuse of confidential information  Breach of contract  Breach of duty of loyalty  Finding out

• Social media
• Other employees
• Clients/customers
• Loss of business

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 Cease and Desist Letter to former employee

• Breach of contract
• Breach of fiduciary duty
• Theft of trade secrets
• Tortious interference with contract
• Computer Fraud & Abuse Act
• Conspiracy

 Cease and Desist Letter to new employer

• Tortious interference with contract
• Theft of trade secrets
• Conspiracy

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 Often from GC of former employer  Risks

• Employee is terminated
• Trade secret specificity required
• Delay
• Deletion of data

 Inadequate or no response

• Follow up with outside counsel letter

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 Injunctive relief

• High stakes litigation
• Costly
• Mini-trial in short time

 Consider effects of litigating non-compete

• How many employees signed the same agreement
• Preclusive effects

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Jennifer M. Trulock Baker Botts 2001 Ross Avenue Dallas, TX 75201-2980 1.214.953.6500 jennifer.trulock@bakerbotts.com

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