employees, secrets and competition: non-competes …–premise: how long is protection necessary?...

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.

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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 | [email protected] | 202-331-3154 Dianne E. Carlson| [email protected] | 214-665-3725

mailto:[email protected]

mailto:[email protected]

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 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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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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– 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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> “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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> 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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> 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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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employees, secrets and competition: non-competes …–premise: how long is protection necessary?...

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