Power of Attorney - August 2008

Dangerous Departures

Protecting Your Company's Assets

by Christian Zinn

Can your company afford to have its employees compete against the company? How about ex-employees recruiting your current employees and calling your vendors? What about employees taking the intellectual property they created while employed – can your company afford losing that?

To better protect the company’s investment against scenarios such as those above, there are four agreements that every company may want to consider making part of their standard hiring packet. Each of these agreements can be relatively simple, and will protect your business assets should the unfortunate situation arise when a key employee decides to “look for greener pastures.”

Non-compete Agreement

These types of agreements restrict current and former employees from competing against a former employer for a period of time after the employee decides to leave. The agreements are enforceable in court, subject to the requirement that they be reasonable in scope and duration.

Upon an employee giving notice, it is a good idea to send a polite reminder of his obligations under the non-compete. Usually, this will be all it takes for he or she, and the new employer, to carefully consider their actions and potential exposure to liability.

Non-disclosure Agreement

Another key protection for businesses are agreements that prohibit the unauthorized disclosure or use of the company’s confidential information and trade secrets. All businesses have valuable company information that would give competitors an unfair advantage if they were privy to it – for example, customer and supplier lists and price sheets. This information can easily be protected with nondisclosure agreements.

Intellectual Property Agreements

Equally important are agreements specifying that all intellectual property (software programs, manuals, prototypes) developed by employees belong to the company. These agreements ensure that exiting employees subject to this agreement won’t be able to take products/services which they participated in developing to their next employer, who will mostly likely be a direct competitor.

Non-solicit Agreement

If a former employee has a good rapport with your current clients and can hold out the promise of the same level of service at the same, or lower cost, it is entirely possible to lose that business. Companies can protect against this frustrating and financially damaging situation by having employees execute valid non-solicitation agreements that prohibits employees from soliciting clients when the employee decides to leave the company.

Other employees are also at risk of being lured away. To protect against this happening, any non-solicit agreement should also include a prohibition against soliciting other employees to leave.

Similar to a non-compete, if a non-solicitation agreement is in place, sending a polite reminder to the departing employee regarding his obligations under the agreement will help to ensure that when he or she walks out the door, clients, suppliers and other employees won’t be going with the employee.

When All Else Fails

There is no fail-safe measure which can completely eliminate the risk that an ex-employee will act in his or her new employer’s best interest without consideration for your company’s.

But, as they say, “an ounce of prevention is worth a pound of cure.” These types of agreements are often enforceable in court. If you have valid, properly executed non-compete, non-disclosure, non-solicit agreements, and an agreement not to misappropriate the company’s intellectual property, then your company is on track to preventing many problems faced when employees leave.

Christian Zinn
Christian Zinn is an associate with Lewis and Roca’s Labor and Employment group.