Restrictive Covenants, Confidentiality Agreements, and Trade Secrets

Restrictive Covenants Restrictive covenants are contractual agreements that aim to protect employer interests by limiting the ability of former employees to do such things as:Restrictive covenants –going to work for competitors –disclosing trade secrets or other sensitive information –soliciting clients or former coworkers to do business with or join other firms –making disparaging comments about their former employers The increasing use of restrictive covenants to constrain the activities of former employees raises important legal and public policy questions.

Noncompetition Agreements Noncompetition agreements are designed to prohibit former employees from working for competitors. The extent to which such agreements are enforceable varies considerably from state to state. Courts recognize such agreements as restraints on trade and will enforce them only to the extent that the restraint is necessary to protect legitimate business interests. Rule: Employers should use noncompetition agreements only if important business interests are at stake, and should craft the agreements to be no broader than necessary to protect those important business interests.

Covenants not to compete –Limited as to duration or geographic area –Based on some good consideration –Reasonable and not interfere with interests of the public Rule: Employers should use noncompetition agreements only if important business interests are at stake, and should craft the agreements to be no broader than necessary to protect those important business interests.

Georgia Restrictive Covenant Law Major changes effective 1/1/11. Previously, Georgia was a "no-blue pencil" state New Act –Modification of Overbroad Provisions –No Temporal Restriction for Non-disclosure Provision –Broadening a Non-solicitation of Customers Provision –Non-compete Agreements Apply to a More Defined Group of Employees

Other Provisions Nonsolicitation agreements prevent former employees from soliciting the firm’s clients after the employee leaves. –Some courts give employers more leeway in using these agreements because they impose a lesser restriction on the employee’s ability to earn a living. Trade secret refers to information that has actual or potential economic value because it is not generally known to others and the owner makes reasonable efforts to keep this information secret.Trade secret –Courts have traditionally recognized a duty of employees under common law not to divulge such information.

Trade Secret Form Of Information Owner Works To Keep Secret Economic Value Derived From Secrecy Theft = Misappropriation x

Georgia Trade Secrets Act O.C.G.A. § § through Theft of Trade Secrets –Any form of information –Owner works to keep secret –Economic value derived from secrecy –Examples: customer lists, marketing plans, research results, formulas & designs Uniform Trade Secrets Act

Camp Creek Hospitality v. Sheraton Franchise Corp. Hotel’s occupancy levels, average daily room rate, discounting policies, long-term contracts, & operating expenses.

Leo Publications, Inc. v. Reid A publication’s list of advertisers, which included the size & frequency of their advertisements.

Reasonable Efforts to Maintain Secrecy Limit access to those who need to know Keep sensitive information under lock and key Password protect electronic files regularly remind employees that information is secret Stamp information as “Secret” or “Confidential.” Prohibit or limit copying of confidential information.

Remedies Injunction Damages Punitive damages & attorney’s fees for ”willful and malicious” misappropriation.

Confidentiality Agreements Confidential information (broader than trade secrets) –Employer’s property & peculiar to employer’s property –Disclosure or use must cause injury –Information must possess an element of secrecy peculiar to the employer Must be limited to reasonable time

Other Provisions Nondisparagement clauses prevent employer and employee from saying negative or critical things about one another Nondisparagement clauses are now commonly included in severance agreements.