employees, secrets and competition: non-competes …–premise: how long is protection necessary?...
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EMPLOYEES, SECRETS AND COMPETITION: NON-COMPETES AND MORE
First Run Broadcast: April 26, 2016
1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes)
When the value of a company is based on “know-how,” long-term customer relationships and/or
a course of dealing, its owners are always and rightly concerned about the departure of key
employees. Know-how, methods and techniques developed by the business, customer lists or
relationships, vendor pricing information and other essential information are potentially
jeopardized when key employees – managers, sales people, technicians or others – leave the
company. Worse yet, employees may seek to start a competitive enterprise with their former
employer. Employers have a range of alternatives to prevent substantial damage to their
companies, but they are limited and must be planned and drafted with great care. This program
will provide you with a practical guide to non-compete and confidentiality agreements and other
techniques to protect a client’s business.
Practical planning and drafting of non-competition and non-solicitation agreements
Protectable interests – customer contacts, pricing information, key employees, and more
Scope of the protection – what uses of the information are a violation and for how long?
Planning and drafting to increase the enforceability
Establishing an effective compliance monitoring system
What types of employees should you place under a non-competition agreement and at
what cost?
Speaker:
Dianne E. Carlson is of counsel in the Dallas office of Greenburg Traurig, LLP, where she has
an extensive employment and labor practice. She has substantial experience advising employers
on executive employment agreements, policies, non-compete and confidentiality agreements,
reductions in force and termination procedures. She previously served as Chief Financial Officer
of a disability consulting firm and as in-house counsel for American Airlines. Ms. Carlson
earned her B.A., magna cum laude, from Duke University and her J.D., with honors, from The
University of Texas School of Law.
VT Bar Association Continuing Legal Education Registration Form
Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____Last Name___________________________
Firm/Organization _____________________________________________________________________
Address ______________________________________________________________________________
City _________________________________ State ____________ ZIP Code ______________________
Phone # ____________________________Fax # ______________________
E-Mail Address ________________________________________________________________________
Employees, Secrets & Competition: Non-Competes and More Teleseminar
April 26, 2016 1:00PM – 2:00PM
1.0 MCLE GENERAL CREDITS
PAYMENT METHOD:
Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________
VBA Members $75 Non-VBA Members $115
NO REFUNDS AFTER April 19, 2016
Vermont Bar Association
CERTIFICATE OF ATTENDANCE
Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: April 26, 2016 Seminar Title: Employees, Secrets & Competition: Non-Competes & More Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.
G R E E N B E R G T R A U R I G , L L P | A T T O R N E Y S A T L A W | W W W . G T L A W . C O M
©2014 Greenberg Traurig, LLP. All rights reserved.
Protecting Employers’
Valuables
Non-Competes, Statutes, and
Other Tools
Johnine P. Barnes | barnesj@gtlaw.com | 202-331-3154 Dianne E. Carlson| carlsond@gtlaw.com | 214-665-3725
Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Protecting Employers’ Valuables
Overview:
1. What can the employer protect?
2. Against what is the employer protected?
3. What are the common principles of drafting Non-compete agreements?
4. What are some additional issues that affect enforcement?
5. When should employer consider enforcement?
Summary:
1. Provide generalized information related to types of state laws
2. Provide general tips on things to consider at all phases of the development of a program of protection
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Protecting Employers’ Valuables Important Caveat:
Protection of trade secrets, confidential information and business
relationships and goodwill are matters regulated by individual
states. The general information provided in this program must be
compared with your individual state’s laws regarding these issues.
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 1: What can an employer protect?
> Information defined by the organization as valuable
– Is it information the organization protects as
confidential?
– What steps has the organization taken to ensure
confidentiality?
– Has the employee received notice of confidentiality?
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
– Has the employee received notice of confidentiality?
Often the subject of a Non-Disclosure Agreement
Sometimes generally protected by state law
State law determines whether a handbook
notification of confidentiality is sufficient
– State laws vary regarding details
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Question 1: What can an employer protect?
Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 1: What can an employer protect?
> “Trade Secret” as Defined by Law
– Uniform Trade Secrets Act (“UTSA”)
48 states and District of Columbia
Only Massachusetts and New York rely on common law
Definition of trade secret varies widely under UTSA
– Other laws may protect similar rights in
different ways
Criminal anti-theft statutes
Civil statutes related to theft of trade secrets
– Subject to interpretation within each state
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 1: What can an employer protect?
> Intellectual Property, Inventions
– Protected by ownership rights
Registrations – can be state or federal
Works for hire agreements – ensures individuals’ work is correctly assigned to employer
Licenses – regulate authorized use of intellectual property
– Federal law largely governs intellectual property rights, use
State laws may cover additional rights or provide for limited registration requirements
– Effective protection of intellectual property requires pro-active effort by owner
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 1: What can an employer protect?
> Business “Goodwill”
– Includes customer, client, employee, contractor and vendor
relationships
– Greatest protection available comes from Non-Compete,
Non-Solicitation Agreements
Drafting requirements vary widely state by state
Narrow protections exist under some definitions of Trade
Secret
Enforcement challenges abound, particularly if multiple
states are involved
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 2: Against what is the employer
protected?
> Confidentiality Agreement or NDA
– Limited to scope of agreement
– Limited to confidential nature of information
– Generally protected against improper use and
disclosure
> Length of effectiveness varies by state or by terms
> Subject to principles of contract interpretation
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 2: Against what is the employer
protected? > UTSA – Protected against theft or use of trade secrets
– State laws define trade secrets differently
Information must fit within statute language and court interpretation
– State laws define behavior that is subject to enforcement
Some protect against theft which may not occur if it is merely copied
Some protect against improper use or unlawful intent to use trade secret
> Doctrine of Inevitable Disclosure
> Dependent on statutory language and subject to state court interpretation
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 2: Against what is the
employer protected?
> Criminal statutes
– Type of protection depends on language of statute
Deprivation or improper use?
Intent component
No private damages available
> Other laws (by way of example)
– Texas: Theft of Trade Secrets Act
Falls between Texas UTSA and criminal theft statute
Addresses unique nature of theft of electronic data without need to show intent to use information unlawfully
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 2: Against what is the
employer protected?
> Use of goodwill, including business-based relationships, to steal business or unlawfully compete
> Note: the law in general promotes competition
– Because competition is encouraged, limits are subject to strict scrutiny
– Restraints on competition are regulated by statute or common law, state by state
– Many limitations exist
> Each state has its own unique approach
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 3: What are the common principles
involved with drafting a Non-Compete
Agreement?
> Structure of Agreement
– In writing signed by both parties?
– Is timing of relationship significant?
– Are there consideration requirements?
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 3: What are the common principles
involved with drafting a Non-Compete
Agreement?
– Is there additional information required?
Texas: Ancillary to enforceable agreement
Florida: must specifically name 3rd party beneficiaries
> Choice of law provision
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 3: What are the common principles
involved with drafting a Non-Compete Agreement?
> Scope of prohibited activities
– There must be a protectable interest
– The employee must be capable of using the
protectable interest against the employer
– The employee cannot be completely deprived of
earning a living
> Sale of business allows for broader scope
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 3: What are the common principles
involved with drafting a Non-Compete Agreement?
> Reasonable restriction as to time
– Premise: how long is protection necessary?
I.e. sales cycle is short or long?
– May be determined by statute or based on court interpretation
– Most states allow up to 2 years post-employment
– Most states allow up to 5 years post-sale of business
– Time element must be written into agreement
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 3: What are the common principles
involved with drafting a Non-Compete
Agreement?
> Reasonable restriction as to geography
– Tailor specifically to employee, nature of business, protectable interest
– Ranges from miles to states to countries
– Must be included in agreement
– Some states allow reference to specific competitor companies or protected customer lists to substitute for geographic restriction
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 4: What additional issues affect
enforcement?
> Court reformation
– Some states allow reformation (blue pencil)
If too broadly drafted, court can modify terms
Some states limit reformation to striking terms
Some states void entire covenant if original terms
are too broad
– Reformation can affect damages
– Reformation is not a fail-safe for poor drafting
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 4: What additional issues affect
enforcement?
> Public Policy can affect enforcement
– Some courts will enforce a clear protectable interest based on substance of facts rather than form of agreement
– Some courts require meticulous attention to drafting detail
– Enforcement can be subject to philosophical differences between the law chosen and the law of the state in which the employee works
– Choice of law can make a difference
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 4: What additional issues affect
enforcement?
> Balancing Employer interests and Employee needs
– Each state takes its own approach. Some factors include the following:
• The basis of termination
• The circumstances of entering the agreement and whether the employee meaningfully participated in drafting
• Whether the employee needs the job, or the
community needs the employee’s skills
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 5: When should the employer consider
enforcement?
> Before a breach
> Develop a plan for protecting trade secrets and confidential information
> Clearly identify and consistently protect the company’s essential corporate assets
> If a Non-Compete or Non-Solicitation Agreement is part of
this plan, is enforcement also part of the plan?
– Enforcement begins with drafting: Is the agreement intended to scare the employee or be enforceable by the employer?
– Has the company updated agreements through job or responsibility changes of key individuals?
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Protecting Employer’s Valuables Greenberg Traurig, LLP | gtlaw.com
Question 5: When should the employer
consider enforcement?
> Establish trade secret/confidential information review as part of exit protocol
– Consider forensic aid in tracking electronic information
– Consider policies related to use of personal devices for convenience as against need to protect trade secrets
> At notice of breach, time is of the essence
– Significant remedy is injunctive relief.
The longer the delay, the less likely a claim for irreparable harm is believable.
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