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NON-COMPETES: SHOULD YOU HAVE THEM, AND WHAT TO DO WHEN FACED WITH ONE?

NON-COMPETES: SHOULD YOU HAVE THEM, AND WHAT TO DO WHEN FACED WITH ONE?. Jonathan A. Keselenko Partner Foley Hoag LLP February 6, 2008. What is at stake?. Every Day, Your Intellectual Property Walks Out the Door Employee Mobility –Competition Ability to Hire. Recent Phenomena .

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NON-COMPETES: SHOULD YOU HAVE THEM, AND WHAT TO DO WHEN FACED WITH ONE?

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  1. NON-COMPETES: SHOULD YOU HAVE THEM, AND WHAT TO DO WHEN FACED WITH ONE? Jonathan A. Keselenko Partner Foley Hoag LLP February 6, 2008

  2. What is at stake? • Every Day, Your Intellectual Property Walks Out the Door • Employee Mobility –Competition • Ability to Hire

  3. Recent Phenomena • Non-Disclosure (NDAs) and Non-Competition Agreements increasingly prevalent • Upside and Downside • Substantial Increase in Litigation of Issues Involving Enforcement of Restrictive Agents

  4. Recent Phenomena (Continued) • Other causes of the increase in litigation: • Managers, rather than Human Resources department, identifying new talent • Human Resources has less control over process (what is said and done before official offer made) • It’s an electronic world • Companies willing and able to scrutinize departing employees’ computers to assess their pre-termination conduct

  5. General Legal Landscape • At-will Employees Can Change Employers Freely • Can Plan to Compete • Can Take Active Steps to Do So While Employed • Caveat: not on your dime/time!

  6. Types of Restrictive Agreements • Nondisclosure/Inventions Agreements • Noncompetition Agreements • Nonsolicitation Agreements • Customers • Employees • Suppliers

  7. Enforceability of Non-Competes • Not Automatic • Must Be Necessary to Protect Legitimate Business Interests and Not to Protect From Ordinary Competition • Reasonable in Time and Geographic Scope

  8. Interests • Protection of Customer Good Will, Relationships • Protection of Trade Secrets/Confidential Information

  9. What Information is Protectable? • Customer Information • Manufacturing Processes and Methods • Business/Financial Information • Sales Figures • Marketing Forecasts • Future Plans • Computer Programs and Data Compilations

  10. What is Not Protectable? • General Knowledge/Skills/Abilities • Publicly Available Information • Information Resulting From Reverse Engineering

  11. Tips for Maximizing Protection: • Develop Comprehensive Program to Protect Trade Secrets and Other Information • Confidentiality Policy • Educate Employees About Policy • Restrict access to information • Label confidential documents (electronic too) “Confidential. Do Not Copy, Do Not Distribute”

  12. Tips for Maximizing Protection (Continued): • Focus Your Agreement on Protecting Your Information • Specify the kinds of information that are confidential • Specific is better than generic • Spell out what is “competition”

  13. Tips for Maximizing Protection (Continued): • Common Mistake: The “Naked” Non-Compete or “One Size Fits All” Approach • Swinging for the Fences Often Results in Strike-outs: Tailor Your Agreement to Your Interests • Make sure You Have Consideration • Inception of employment is best • If not, tie to other benefits

  14. Tips for Maximizing Protection (Continued) • Act Quickly/Aggressively to Protect Your Rights • Investigate Employee’s Actions • Letters to Former Employee, New Employer • Litigation

  15. Tips for Maximizing Protection (Continued) • Consider State of Employment • State laws very widely • The California Problem • Options

  16. Menu of Litigation Options • Immediate Request for Injunction • Expedited Discovery • Arbitration?

  17. Hiring Employees With Non-Competes • The other side of the coin – risks • Have practice of inquiring about getting existing agreements • Study the risks • Agreements • Trade Secret laws • Duty of Loyalty

  18. Hiring Employee With Non-Compete…(Continued) • Just Because There Is A Non-Compete Doesn’t Mean No Hire: • Competitors? • Legitimate Interest? • Other Positions? • Weigh Risk

  19. Hiring Employee With Non-Compete…(Continued) • Document expectations/restrictions • Employee warranties

  20. Effectively Managing The Hiring Process • Departing employees sometimes do stupid things • Outline parameters for communication about new employment • Not on company time • Not with use of company equipment • Best advice to employee: assume every key stroke on every computer will be seen by your former employer

  21. Effectively Managing The Hiring Process (Continued) • Managing managers who recruit/start hiring process: • Trainings on protecting your company’s intellectual property/confidential information should include a discussion of how this goes both ways, so that in the enthusiasm to lure friends/former coworkers from other places, employees do not get the company into trouble • Advise about parameters relating to solicitation • Do not inform of plan to depart; wait until termination is effective before communicating with customers

  22. Effectively Managing The Hiring Process (Continued) • If information is taken (customer list, etc.), investigate former employer’s efforts to protect the information • Do not forget written agreements: scrutinize language in agreements

  23. Hiring Employers Have Some Recourse Against Overly Aggressive Former Employers • Recent significant case: Brooks Automation, Inc. v. Blueshift Technologies, Inc., et al. • Plaintiff sought to enforce a non-competition agreement against a former employee and his new employer • Court refused to enforce the agreement, granted defendant’s Chapter 93A (unfair competition) counterclaim, ordered plaintiff to pay defendants’ attorneys’ fees as a penalty for initiating the action

  24. Hiring Employers Have Some Recourse Against Overly Aggressive Former Employers (Continued) • Court held that plaintiff company had no reasonable basis to believe its suit would succeed • Plaintiff company acted with a purpose other than adjudicating its claims: to prevent the defendant company from entering a contract with a 3rd party • The plaintiff company filed a frivolous lawsuit, and willfully violated Chapter 93A • The court trebled the damage award to $627,900, plus attorneys’ fees

  25. Should Non-Competes Be Illegal? • Proposals in Massachusetts • The California Model

  26. Questions/Discussion Jonathan A. Keselenko, Esquire Foley Hoag LLP 155 Seaport Boulevard Boston, MA 02210 Phone: (617) 832-1208 Fax: (617) 832-7000 jkeselenko@foleyhoag.com

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