Knowledge drain

Have you spent years developing a process or formula in your business that gives you a competitive advantage?

Are you afraid your intellectual property is going to walk across the street to your competitor when an employee leaves?

If so, consider restrictive employment covenants. And if you already have them, make sure they are up to current legal standards. These covenants keep an employee from taking knowledge you paid to develop in your business to a competitor.

“Most companies do employ some type of restrictive employment covenant, and if they are properly written, they are enforceable,” says George F. Voinovich, an attorney with Akron-based law firm Brennan Manna Diamond.

The key is that the restrictions must be reasonable in the eyes of the courts. While it may be tempting to try to restrict an employee with in-depth knowledge of your business processes from working anywhere in your industry for an extended period of time, it probably won’t be enforceable because it’s too broad.

“The more carefully defined a limitation is, the better off you are,” says Voinovich.

If a provision takes away the employee’s sole means of support, the courts will likely rule against it.

“What a lot of companies do, if you have particular competitors you are concerned about when you hire someone, name them specifically in the covenants,” says Voinovich. “Courts like that, assuming you haven’t named everyone in the world. Sometimes keeping the limitation geographic if you are a regional business is a good idea. Maybe name any competitor in Ohio and the contiguous states.”

The length of the covenant is typically two to three years, but is dependent on industry. A slow-moving manufacturing niche might require three to four years, while the fast-moving high-tech arena might only require a one-year restriction.

“The watch word is reasonability,” says Voinovich. “You want to put a covenant in place that is fair and protects the company interests but doesn’t lock the employee out of the game. The more specific you can be and the more activities you can list you don’t want the employee to engage in, the better off you are.”