Editor’s Note: Originally published by the Columbus Chamber of Commerce, this article appeared on their website January 6, 2016. It is republished to BakerHostetler’s Employment Law Spotlight with their permission.
A key employee leaves. She takes a job with your top competitor. With what she knows – and who she knows – she could undercut your pitches and take some of your biggest clients. If she’s not stopped, it could put your entire business at risk. Are you sure your company is fully protected?
All businesses invest time and resources to keep their property safe. It comes naturally. You lock the doors. You install a security system. You track your inventory. You might even hire security guards to monitor who comes and goes.
But many companies don’t do enough to safeguard the information and relationships that really make them successful. It’s not always easy to know what to protect. And it’s not always clear how to protect it. The right nondisclosure, non-solicitation, and non-competition agreements can be critical to the success – or even the survival – of your business.
Are your confidentiality policies and agreements up to date and tailored to the specific needs of your business?
One of the most common HR mistakes is relying on boilerplate or “cookie cutter” confidentiality policies. To be effective and meet your goals, confidentiality policies and agreements have to be tailored to the specific needs of your business. That means carefully working through what information and relationships you need to protect, what types of competition you need to prevent, and how your employees will react. It also means staying diligent and revisiting your policies and agreements on a regular basis to make sure your business is safe.
Are you protecting the knowledge and information valuable to your company?
It’s a common myth that only highly sensitive trade secrets like chemical formulas or top secret customer lists can be protected. That’s usually not the case. Your company has the right to protect any information that’s helpful to your business and not generally known to the public. That could include business plans. It could include any sales methods or techniques your company developed over the years. It could include marketing strategies, spreadsheets, or internal presentations. Anything valuable to your business and not in the public domain should be protected.
Is your information protected by nondisclosure agreements?
After deciding what information your company needs to protect, the next step is developing or reworking nondisclosure agreements. Nondisclosure agreements stop employees from using or disclosing confidential information outside the company. These agreements should describe any specific information your company considers confidential, while remaining broad enough to include information you might not anticipate. They should also require employees to return any confidential information when they leave.
To keep nondisclosure agreements enforceable, your company should implement procedural safeguards to make sure confidential information isn’t accidentally made public. For example, whenever possible, confidential information should be marked. Rather than storing information on general servers open to all employees, access should be limited to those who need it to perform their duties. And any electronic information should be stored on a network with password protection.
Are relationships important to the success of your business?
Most companies spend a lot of time and energy building relationships. Your company probably has important relationships with customers, prospects, vendors, employees, and other key business partners in the industry. If so, consider protecting those relationships with non-solicitation agreements.
Non-solicitation agreements typically restrict former employees from continuing to do business with customers for a reasonable time after their employment ends. They can also restrict continued solicitation of prospects, vendors, employees, referral sources, or other key contacts. To make sure your company is fully protected, non-solicitation agreements should be tailored to protect the contacts and relationships most important to your business.
Do employees know too much to compete against your business on a level playing field?
Sometimes nondisclosure and non-solicitation agreements aren’t enough. When employees know too much, they can give your competitors an unfair advantage even without disclosing confidential information or soliciting customers. Non-competition agreements are often the only reliable way to level the playing field.
Non-competition agreements restrict employees from competing against the company for a reasonable time after they leave, normally within a particular geographical area. The scope of the restrictions should be tailored to the employee’s role and responsibilities, and it’s important to explain what types of businesses you consider competitive. While a boilerplate agreement could get struck down as unreasonable or vague, a judge is more likely to enforce a non-competition agreement tailored to the specific needs of your business.
Are you prepared to enforce the nondisclosure, non-solicitation, and non-competition agreements that protect your business?
When a key employee leaves without honoring contractual commitments, employers can face difficult decisions. Enforcing a nondisclosure, non-solicitation, or non-competition agreement can be disruptive and expensive. But not enforcing these agreements can have unintended consequences down the road. For example, a company may decide not to enforce a non-competition agreement against a sales executive who isn’t perceived as much of a threat. What happens when another sales executive leaves for the same competitor and takes the company’s biggest client? Some judges don’t allow employers to selectively enforce non-competition agreements against some employees, but not others in the same role. Before deciding whether or not to pursue a potential violation, consider the big picture implications.
Is your business fully protected?
Preventing unfair competition and protecting confidential information isn’t easy. It takes time, focus, and careful planning. Even sophisticated companies often fall short of ensuring their information and relationships are fully protected. Roles and responsibilities change, and the knowledge and contacts that are important to the success of the business evolve over time. It’s challenging to stay ahead.
But when a key employee jumps to a competitor, it’s often too late. Boilerplate agreements that haven’t been updated or reworked can put your business at risk and jeopardize knowledge and relationships that took years to develop. On the other hand, up to date agreements tailored to your specific needs can stop unfair competition and protect your business.
If your business relies on knowledge and relationships to succeed, make sure your interests are protected before things go wrong. In this area, an ounce of prevention really is worth a pound of cure. Give us a call if we can help.