DETROIT ? A useful means of protecting your business from customer raiding or trade secret violations is a non-competition or non-solicitation agreement. These agreements bar employment at a competitor (non-compete) or at least bar solicitation or work for a set of customers (non-solicit).
Non-competes: Generally, to be enforced in court, a non-competition agreement must be reasonable as to geographic scope, duration, and the line of work it prohibits and must have the purpose of protecting a business interest such as trade secrets or good will.
Typically, the courts will enforce a non-competition agreement for one year in the employer?s actual geographic service territory and particular product market (e.g., the set of potential customers for the products manufactured or services performed by the business). These agreements may be enforced by suit for injunctive relief and damages, but any non-compete violation claim should be brought quickly so that the court may be persuaded that an immediate injunction is necessary.
Non-Solicitation Agreements: Even if a non-compete agreement is not adopted, a non-solicitation agreement (in which the former employer?s customers may not be solicited for a time (such as a year)), is an appropriate means of protecting trade secrets and the goodwill of customer relationships. Again, injunctive relief should be sought immediately.
Trade Secret Protection Helps Non-compete Enforcement: Trade secret protection is a recognized reason for court enforcement of non-competes, especially in the absence of customer solicitation by the offending employee.
Trade secrets can include customer lists, customer preferences, prospective customers, prices and pricing policies, costs, margins, internal weaknesses, business, marketing, strategic, and sales plans, business processes, planned products and services, mergers and acquisition targets, and identities of, and information about, suppliers and employees as well as other information.
If an employee were to go to a competitor and use the former employer?s confidential information (even if he or she only ?memorized? this information), the Uniform Trade Secrets Act would allow a suit for an immediate injunction against use, disclosure, or even ?threatened use? of such information (and in some cases even against employment with the competitor or solicitation of the businesses? customers).
The Act also allows recovery of money damages and in certain cases allows recovery of attorneys? fees from the offender(s).
Secrecy Measures: The ?secrecy? required for a trade secret claim may be demonstrated by storage of information (computer or hard copy) with locked or limited access, need-to-know access, electronic key access, marking information as ?confidential?; visitor restrictions; employee policies on confidential information, routine verification of and reminders about confidentiality, pursuit of departing employees with confidential information, prohibiting removal of information from company premises, copy restrictions (numbered copies, e.g.), and conducting exit interviews.
Confidentiality/Non-Disclosure Agreements: Confidentiality agreements should be part of employment agreements/policies for any employer possessing confidential business information.
In case of a violation, the court will not ordinarily prohibit a departing employee from working at all for a new employer. Instead, the court will commonly order the employee not to use or disclose trade secrets. Thus, a non-compete agreement may be much more helpful, in that such an agreement, if enforced, may bar the new employment entirely and thus more effectively prevent disclosure of trade secrets.
The bottom line is that non-competes are enforceable if they are reasonable in scope and serve to protect assets such as trade secrets that are truly valuable and not commonly available. Thus, steps should be taken to ensure that agreements in place are reasonable and that security measures have been adopted.
This column was written by Carey A. DeWitt of Butzel Long. You can email DeWitt at [email protected]
