How to safeguard against losing your company’s intellectual property

Susan Rowe, Partner, The Stolar Partnership

In today’s competitive environment, noncompete and confidentiality agreements can be critical to maintaining an edge over your rivals.

And failing to have them could put your company out of business should your employees leave and take your secrets with them, says Susan Rowe, a partner with The Stolar Partnership.

“One of the primary assets that most businesses have — which they’ve often spent significant funds to develop — is their confidential information,” says Rowe. “This includes, for example, formulas, proprietary research, customer databases, pricing strategies and other trade secrets.”

Smart Business spoke with Rowe about noncompete and confidentiality agreements, what type of information to include in employee contracts and, if things go awry, what type of evidence is needed to pursue legal action.

Why is it important for employers to address noncompete and confidentiality agreements?

Missouri statutes protect confidential information that is a trade secret. It’s important to have a confidentiality agreement because you can use it to talk to the employee about the importance of protecting confidential information. You can also identify trade secrets and confidential information. If you fully describe what is confidential, the employee can’t later say, ‘I didn’t understand that this was or wasn’t confidential.’  Furthermore, you can include certain protections in addition to the protections that statutes might provide for the employer.

It’s also important to have a noncompete agreement. Absent a noncompete, former employees can leave to join a competitor, with nothing to prevent them from doing so. Even without confidential information, there are circumstances in which an employer doesn’t want someone it has trained — and spent significant resources doing so — to go out and compete against it.

What information should be included in a noncompete agreement?

It’s important for employers to realize that the enforcement of a noncompete agreement is a legal matter. Noncompetes can be expensive to enforce in the courts. Noncompetes undergo a lot of scrutiny in the courts because the law says such agreements are anti-competitive and can only be used to protect certain interests of the employer — such as the customer base or trade secrets.

If you’re protecting client relationships, describe the scope of the relationships and identify which are considered confidential and subject to the noncompete.

Also, be careful about the scope of the agreement in terms of its length and geographic restrictions. The courts typically do not allow for a very broad geographic scope or permit a noncompete to go on for a long period of time.

Finally, include remedies for yourself, such as attorney fees and other provisions, which will protect your business if you have to enforce the agreement.

If an employee signs a noncompete agreement but takes a job with a competitor, what steps can an employer take?

To prevent disputes, give the employee who is leaving or who has been terminated copies of the agreement upon his or her departure.

Employers who employ someone with an existing noncompete with a former employer — and are aware of the noncompete but continue to employ that person nonetheless — run the risk of being sued by the former employer on a tortious interference with contract claim. If you become aware of a former employee, bound by your noncompete agreement, working for a competitor, have your attorney send the new employer a copy of the agreement, thereby putting the new employer on notice that you believe there is a noncompete agreement in effect. Often, this will dissuade the new employer from continuing to employ the person. You can also send a letter to the former employee, reminding him or her of the noncompete agreement and stating that you intend to enforce the provisions. Sometimes that’s enough. Other times, employees will proceed in the face of a noncompete and you will have to go to court to enforce the agreement.

What evidence does a business need to pursue legal action against a former employee whom it suspects has leaked confidential information?

As with any lawsuit, before it is filed, make sure that you have good-faith basis for the lawsuit and see that much of your evidence already in place. If one of your former customers says, ‘Oh, your former employee is calling on me,’ ask that person to send a note or letter identifying the person who has called on the business.

If you think the former employee is talking about your confidential information, ask your customer to write down the substance of the conversation. This allows you to have a statement ahead of time that you can use to support what you will be alleging in the lawsuit.

In addition to noncompetes, what other methods can a business use to protect its intellectual property?

Employers should be mindful of what’s out on the Web. Commentators have talked about employers who have found their former employees disclosing confidential information or engaging in developing relationships with former customers on such sites as Facebook and LinkedIn. When employers find this type of information, they should demand that the former employee stop this conduct or remove confidential materials, or face legal action for failing to do so.

Employees change jobs because they’re dissatisfied — they feel like they don’t have opportunities or that they’ve been treated badly. To prevent people from leaving with confidential information, it’s important to build loyalty with your employees, listen to them when they’re upset and treat them fairly.

Susan Rowe is a partner with The Stolar Partnership. Reach her at (314) 641-5119 or [email protected]