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

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Restrictive Covenants in Employment: Crafting Enforceable Noncompete and Non-Solicitation Agreements WEDNESDAY, OCTOBER 14, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Mark A. Saloman, Partner, FordHarrison, Berkeley Heights, N.J. Paul E. Starkman, Partner, Pedersen & Houpt, Chicago Jennifer M. Trulock, Partner, Baker Botts, Dallas The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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3 Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you that you will receive immediately following the program. For additional information about CLE credit processing call us at ext. 35.

4 Non-Competition Agreement for Restrictive Covenants in Employment: Crafting Enforceable Non-Compete and Non-Solicitation Agreements Stafford CLE Webinar October 14, 2015 Paul E. Starkman Pedersen & Houpt 4

5 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 5

6 Stand-alone documents Included in other agreements: Employment Agreements Stock Option Agreements Long-Term Incentive Plans Severance Agreements 6

7 Protectable Business Interests Confidential Information "Near Permanent" Customer Relationships Long-term contracts v. competitive bidding Fungible products v. custom-built products Goodwill 7

8 Defining the Employer Subsidiaries, parents, affiliates included? Successorship Assignability 8

9 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 9

10 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 10

11 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 11

12 "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 12

13 Duration Time to train replacement Alleviate unfair advantages Statutory presumptions of enforceability (Florida, Louisiana) Extendor Clauses Beware of state law on enforceability (Wisconsin) 13

14 Compare with Traditional Non-Competes Garden Leave Deferred Compensation Arrangements Similar Analysis in Some States 14

15 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 overboard non-compete. 5) Termination for refusing to sign invalid non-compete resulted in employer $1.2 million liability(in California, of course). 15

16 Paul E. Starkman Pedersen & Houpt 161 North Clark Street Suite 2700 Chicago, IL

17 RESTRICTIVE COVENANTS IN EMPLOYMENT: CRAFTING ENFORCEABLE NONCOMPETE AND NON-SOLICITATION AGREEMENTS October 14, 2015 FordHarrison LLP Presented by Mark A. Saloman, Esq. Co-Chair, Non-Compete Practice Group

18 PROTECTING YOUR DATA & PEOPLE FROM UNFAIR COMPETITION The Scary Truth: Your most prized assets are unsafe 18

19 ALTERNATIVES TO NON-COMPETE AGREEMENTS: OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS 19

20 AGENDA Drafting Considerations & Best Practices Non-Disclosure Non-Solicitation - customers Non-Solicitation employees Non-Interference Other Options to Protect Trade Secrets & Good Will 20

21 DRAFTING CONSIDERATIONS BEST PRACTICES Goodwill Assumes Many Forms Trade Secrets Confidential Information Client relationships (created, developed, and fostered through your employees) 21

22 DRAFTING CONSIDERATIONS BEST PRACTICES Goodwill Your confidential information / trade secrets 22

23 DRAFTING CONSIDERATIONS BEST PRACTICES What Are Protectable Trade Secrets? 23

24 DRAFTING CONSIDERATIONS BEST PRACTICES What Is Protectable Confidential Information? 24

25 OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS The Non-Disclosure Agreement Confidentiality Provisions 25

26 DRAFTING CONSIDERATIONS BEST PRACTICES What Else Can A Restrictive Covenant Protect? Corporate goodwill 26

27 OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS Non-Solicitation of Clients/Customers Clause 27

28 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) 28

29 OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS The Employee Non-Solicitation Clause 29

30 OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS Non-Interference 30

31 OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS Notice and Garden Leave Provisions Paid Consultancy Transition Arrangements Additional Consideration Golden Handcuffs 31

32 OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS Forfeiture of Economic Rights (Employee Choice Doctrine) 32

33 OTHER CONTRACTUAL POST-EMPLOYMENT RESTRAINTS Clawbacks Employee Loans 33

34 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 34

35 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 35

36 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 or or October 14, 2015

37 Jennifer Trulock Baker Botts L.L.P.

38 Return of property Agreements Reimbursement Clawback/Forfeiture Non-Solicitation Non-Compete Non-Disclosure Intellectual Property Exit interview Reasons for termination Trade secrets 38

39 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 39

40 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,

41 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 41

42 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 42

43 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 43

44 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 44

45 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, coworkers 45

46 Confidentiality, Non-Disclosure Return of Documents and Information Certification IT Access BYOD Preservation of Documents and Information References 46

47 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 47

48 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 48

49 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 49

50 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 50

51 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 51

52 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 52

53 Jennifer M. Trulock Baker Botts 2001 Ross Avenue Dallas, TX