1. 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

2. 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

3. Risks involved with employee mobility
attorneys at law
a professional corporation

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

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

19. 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

20. 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

21. 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

22. Now what? What do you do after the fact?
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a professional corporation