Astrachan Gunst Thomas, P.C. What to Do When Employees Leave for a Competitor: Protecting Valuable Business Interests Astrachan Gunst Thomas, P.C. Attorneys at Law Julie R. Rubin, Esq. Baltimore, MD 21202 410.783.3528 Jrubin@agtlawyers.com

Agenda 1. Risks involved with employee mobility. 2. Has the employee signed a restrictive covenant? 3. Preparation for termination. 4. What’s next? attorneys at law a professional corporation

Risks involved with employee mobility attorneys at law a professional corporation

Let’s start at the very beginning… Duty of Loyalty Act only in furtherance of employer’s interests, but… Can prepare to compete [absent a contrary contract]. attorneys at law a professional corporation

First Major Question: Has the employee signed a restrictive covenant in favor of the employer? A restrictive covenant is any agreement in which the employee has agreed or covenanted to restrict his employment – related activity after the employment relationship with you terminates. attorneys at law a professional corporation

Restrictive Covenants Might Include: The little guy moves the pen around. Isn’t he cute? He’s wearing a tie. attorneys at law a professional corporation

Non-compete agreement The employee agrees that, after the employment relationship ends, he will not engage in competition with the employer – as defined by the agreement – for: A certain length of time In a specific geographic area In a specific industry area or in a specific job function or for particular clients attorneys at law a professional corporation

Non-disclosure agreement Restricts an employee from disclosing or using specific information or general areas of information, including, for example: Pricing structures Customers lists Secret recipes Marketing plans Future plans *Non-disclosures can also embrace the employer’s customers’ information – adding another layer of protection for the employer and its business. (Employer may have legal duty to protect customer’s confidential info.) attorneys at law a professional corporation

Non-solicitation agreements Come in two flavors: Don’t solicit or hire my employees after you leave, or help anyone else to do so. Don’t solicit my customers after you leave, and don’t accept my customer’s business even if offered without your asking. ANIMATED IMAGES: The ice cream drips down attorneys at law a professional corporation

Enforceability of the non-compete A non-compete is a restraint on trade. It tells the employee that he/she can’t be employed or engage in certain business activity for a certain period of time in a certain area. Is this the American way?! attorneys at law a professional corporation

How do you know if the non-compete is enforceable? For a non-compete to be enforceable, it must pass 4 critical tests. Protectable interest Reasonable as to geographic scope Reasonable as to subject matter Reasonable as to time attorneys at law a professional corporation

What about my trade secrets? And, by the way, do I have one of those? What is a trade secret? Information that is valuable because it is not known by others. And reasonable efforts are made to keep it secret. It must, in fact, be a secret. Examples? attorneys at law a professional corporation

What is misappropriation of a Trade Secret? Uniform Trade Secrets Act and Maryland Trade Secrets Act say misappropriation means: Acquisition through improper means Disclosure or use without consent What does all this mean? attorneys at law a professional corporation

If “misappropriation” is not ok, what is ok? Competitors are entitled to acquire your trade secrets through: Independent invention Reverse engineering Discovery / use through license agreement Public means attorneys at law a professional corporation

What are reasonable efforts to maintain secrecy? Non-disclosure agreements? Restriction of disclosure to employees – on an as-needed basis. Other steps? attorneys at law a professional corporation

What can I do if I think someone has misappropriated my trade secrets? Law protects actual misappropriation and threatened misappropriation. Injunction Damages Other contractual remedies attorneys at law a professional corporation

Question for the ages… When you’re NOT dealing with trade secrets, and instead with proprietary or sensitive business information, how does the common law duty of loyalty impact your need to get a non-disclosure agreement in the event the employee leaves for a competitor? Huh? attorneys at law a professional corporation

Preparation for termination - Fire on Monday. Cut off computer access before terminating employment. Do not call security unless necessary. ANIMATED IMAGES attorneys at law a professional corporation

Preparation for termination - Remember these tips when an employee tells you he is leaving: Remind of responsibilities – give copies of agreements, explain lawful duties. Employee must return all equipment. Immediately discontinue access to computer. Do not allow notice period. Follow up with letter enclosing all relevant documents, statement of duties and seeking return of documents by a certain date. attorneys at law a professional corporation

What about the competitor? Liability of new employer Tortious interference? Must be on notice that the employment agreement exists. Potential liability for corporate raids. attorneys at law a professional corporation

What if the new employer raids my company? Is the competitor raiding your employee pool or the secrets they know? Did the competitor seek your employees or vice versa? Do you have restrictive covenants in place? attorneys at law a professional corporation

Now what? What do you do after the fact? ANIMATED IMAGE: man walking with box o’ stuff attorneys at law a professional corporation