When key employees go to a competitor

Your executives and top salespeople have access to your most valuable business strategies, sales contacts, growth plans and innovations.  What do you do when one (or more) of your key employees leaves to work for a competitor?  Without the correct agreements in place to protect your proprietary information, you may have little recourse. 

Don’t Rely on a Court to Protect Your Business Information

When a key employee leaves to go to a competitor, the former employer often scrambles to seek a court injunction to prevent the employee from working for the competitor and to stop the employee from disclosing or using trade secrets and confidential information.  But courts are not always willing to prevent an employee from moving on, especially if the company does not have a reasonable and otherwise enforceable non-compete agreement in place. 

In a recent case in Colorado, a high level executive used his company-issued laptop to send an email containing his business contacts to his personal email address as he began negotiating to work for a competitor.  He also downloaded some business information onto a personal external hard drive and thumb drive and kept physical copies of certain business documents in a box in his car.  About three weeks later, the competitor hired the executive. 

There was no evidence that the competitor requested or obtained from the executive any confidential information, the executive had signed only a nondisclosure agreement with his former employer, and the executive agreed to an injunction preventing him from using his former employers confidential information or trade secrets.  Nevertheless, the former employer asked the federal court in Colorado to prevent the executive from working as the competitor’s president for one year, arguing that he had threatened or would inevitably disclose its trade secrets in his new job. 

Despite the executive’s decision to transfer information to his personal devices just before leaving the company, the court denied the company’s request, citing a lack of evidence that the executive had or would use his former company’s trade secrets to its competitive disadvantage.  Cargill Inc. v. Kuan, No. 14-cv-2325 (D.Colo. Oct. 20, 2014).  The judge noted that enjoining the executive from working for the competitor would, in effect, afford his former employer something it could have obtained or bargained for: a covenant not-to-compete. 

Employment-Related Agreements to Consider

Keeping proprietary information confidential can be key to the future prosperity and competitiveness of your business.  You can help protect that information from walking out the door by having key employees sign one or more of the following agreements: 

  • Non-compete agreement: the restriction on working for a competitor must be reasonable in time and geographic scope, and comply with other applicable state law requirements;
  • Confidentiality agreement: requires employees to keep secret your company’s trade secrets and other proprietary information;
  • Non-solicitation agreement: restricts an employee from soliciting customers (who must be defined in the agreement) or from soliciting other employees to go to work elsewhere; and
  • Assignment of inventions: any products, inventions, innovations and other developments created during the worker’s employment are assigned to and owned by the company. 

Depending on the circumstances, you may want to incorporate some or all of these provisions into a single agreement, and you may need to address varying state law requirements (or choice of law and venue issues) depending on where your employees are located.  However, be careful to tailor your agreements to each type of key employee.  For example, the non-compete for your CEO or general manager may need different restrictions than a similar agreement for your Regional Sales Manager.  And be sure not to use a non-compete with all employees—including lower level ones who have no need for such post-employment restrictions—because it will diminish your justification for asking a higher-level employee to sign the same or similar agreement. 

The bottom line is that you need to be proactive in protecting your vital assets, including your confidential information and your key employees.  Taking steps now to implement proper agreements will go a long way in protecting your business down the road when key employees decide to depart.

Categories: Management & Leadership