Finding new customers and growing sales and market share are the Holy Grail. One way to achieve these objectives is to hire talented sales professionals or managers from competitors. These individuals already know the market and have relationships with potential new customers.
But these individuals’ employers have invested time and money in training them and provided them with trade secrets and confidential business information. They will fight, in the marketplace and the courts, when a competitor poaches their key team members.
Your business could find itself on either side of this equation and must prepare in advance for acquiring employees from, and losing employees to, a competitor. Here are a few tips to help protect your business from the risks of expensive litigation associated with hiring a competitor’s employee, or the loss of critical business assets when your employee departs for a job with a competitor.
When Hiring a Competitor’s Employee
- Require the prospective employee to provide you with all non-compete, confidentiality or restrictive covenant agreements with current or former employers, and to certify in writing that he has done so. Keep in mind that if the agreements state that they are confidential, the employee may need to provide them to your counsel.
- Have your counsel analyze the non-compete, confidentiality or restrictive covenant agreements and advise you as to their enforceability and scope. Louisiana’s non-compete statute is unique and may invalidate common provisions in agreements drafted in other states.
- Consider encouraging the employee to file a declaratory judgment action to invalidate all or part of restrictive covenants that are defective.
- Consider whether you will indemnify the employee if a former employer files suit against him.
- Advise the employee in writing that you do not want any trade secrets or confidential business information from other employers. Require a written commitment that the employee understands this directive and will not bring confidential documents into your workplace or download them into your information systems.
- Reiterate these directives when the employee comes on board. And consider monitoring the employee’s email accounts and computer/phone after the move to ensure compliance with these directives.
- Notify managers that they must refrain from asking the employee to disclose former employers’ trade secrets and confidential business information in an effort to gain a competitive advantage. Advise managers of the risks they and your company face under trade secrets and unfair business practices laws, including the new federal Defend Trade Secrets Act.
Protecting Trade Secrets and Confidential Business Information if a Key Employee Leaves to Work for a Competitor
- Carefully identify the information and documents that constitute your business’s trade secrets and are truly confidential.
- Protect trade secrets and confidential business information by: (i) restricting access to sensitive documents, files and emails to those with a need to know; (ii) using password protection and other security measures with sensitive documents; and (iii) installing security measures on employee phones and devices (particularly if you have a BYOD policy) so that information can be removed when the employee departs or loses the device.
- Draft confidentiality and document retention policies and require employees to sign acknowledgments of these policies.
- Draft Confidentiality/Non-Disclosure Agreements and require employees to sign them.
- Require key employees to sign non-competition and non-solicitation agreements that comply with the law of the jurisdiction where they are employed. Be mindful of the unique requirements of the Louisiana non-compete statute.
- Remind any departing employee of confidentiality and non-disclosure obligations during exit interviews and by written directives at the time of, or immediately after departure. Make written demands that the employee preserve all evidence related to employment with your company, his departure/move, and employment with the competitor.
- Circle the wagons immediately upon the employee’s departure and contact key customers to preserve your company’s relationship with them.
- Monitor the departed employee’s subsequent employment for connections to a competitor.
- Consider notifying the departed employee’s new employer of the employee’s confidentiality and non-disclosure obligations. Consult with counsel before doing so.
- Hire an outside technology consultant and conduct forensic examinations of the departed employee’s computer, phone and other devices to determine whether trade secrets or confidential information were stolen and, if so, to develop evidence for litigation purposes.
- If necessary, file suit to obtain an injunction or otherwise enforce restrictive covenants and protect trade secrets and confidential information.
- Ensure that other key personnel are content so you do not have more departures.
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