Tag Archives: Human resources

Shark Tank and College Football Non-Competes

December 17, 2015 By in Florida Non-Compete Lawyer, Noncompete, Trade Secrets In the News, Uncategorized Tags: , , , , , , , , , , , , Leave a comment

Two recent stories show why all companies should at least consider implementing non-compete agreements or other restrictive covenants.

First, here’s a link to a short interview with Shark Tank’s Robert Herjavec, talking about his first company. Unbeknown to Robert, his sales manager had set up a side business, to which he funneled half of Robert’s customers. Robert only found out because another employee broke down and told him during her exit interview.

Robert finishes the interview with good advice: “The minute you hire the first employee, you have to be careful.”

We don’t know if the sales manager had signed a non-compete or non-solicitation agreement. Such an agreement could have given Robert far better legal options.

Also, Robert trusted that his employees would be loyal. While it’s obviously good to trust your employees, it’s far better to trust and also have them sign appropriate restrictive covenants.

I also read about how an assistant coach of the Arkansas Razorbacks football team left for the University of Georgia. Bret Bielema, Arkansas’ head coach, was not happy. Apparently, his recently hired coaches signed non-compete agreements that prohibited them for coaching for other SEC schools. But the coach who had left had been hired earlier, and he did not have a non-compete.

Of course, Arkansas should have had its coaches sign non-competes from the outset. And once they decided to require new coaches to sign one, they should have at least attempted to have the older coaches sign as well.

These stories show how non-compete agreements can have value across diverse industries. It’s worth speaking with an attorney to figure out whether your company can benefit from implementing restrictive covenants, or improving existing agreements.

 

When It Comes to Trade Secrets, Ignorance Is Not Bliss

April 24, 2015 By in Advice, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , , , , Leave a comment

Trade-secret misappropriation cases often involve bad actors who deliberately steal trade secrets. But perhaps just as frequently, trade-secrets are misappropriated by people who simply don’t know better. Many don’t even understand what a trade secret is, let alone that there are laws or other obligations prohibiting inappropriate use or disclosure of trade secrets.

I’ve personally seen this happen over and over. An employee leaves one company to join another in the same industry. He takes many of the documents he created at his old job. These documents contain trade secrets. In his mind, they are his documents. He created them, after all! And at his new job, he uses those documents on behalf of his new employer.

Now both companies have a problem. The former employer’s trade secrets are in a competitor’s hands. And the new employer has unwittingly exposed itself to significant liability.

Both companies are to blame for their problems. The first company did not educate its employees about their responsibilities and legal obligations regarding trade secrets and proprietary information, both while working for the company and after they leave. The second company failed to make sure that the new employee did not bring his prior employer’s trade secrets with him.

There are three primary tools for preventing this situation: contracts, training, and exit/intake interviews. Employees with access to proprietary information should sign a non-disclosure agreement that requires them to keep the information confidential. The agreement should provide that all information belongs to the company even if created by the employee, and must be returned upon termination of employment. And the contract should acknowledge that the employee is not bringing any proprietary info or trade secrets from her prior job.

But employees too often don’t read contracts before signing them. That’s where training comes in. During the on-boarding process, and periodically thereafter, use training sessions to reiterate your trade-secret policy.

Finally, use exit interviews to again instruct the departing employee about his post-employment obligations. Consider having him sign an acknowledgement that he has returned all info and is aware of these obligations. When hiring a new employee, talk with them up front about what info they have from their prior employer. Be sure to consult with an attorney if that discussion raises concerns.

I really believe that many misappropriation cases can be avoided by simply making sure that employees understand these issues. Too often, they do not.

 

Trade Secrets Best Practices: Exit Interviews

January 12, 2015 By in Advice, Noncompete, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , , , , , , , , Leave a comment

This is the next in a series of posts addressing best practices for protecting trade secrets and proprietary information. Today’s topic: exit interviews, which can be a powerful tool to avoid, or at least anticipate, unwanted disclosure.

An exit interview is exactly what it sounds like. When an employee is leaving your company, you have someone meet with him to discuss various aspects of his departure. There are several goals: remind the employee of his legal obligations; make sure he has returned all company information, documents, and devices; and gather intelligence about his next job to determine the risk of unwanted disclosure.

The key is to have a set process that is automatically followed each time an employee leaves. Depending on the size and structure of your company, a single person or department should be responsible for conducting the interviews. That person should work from a checklist that includes all topics that must be discussed. To develop this process, consult with an attorney who specializes in trade-secrets issues who can help customize it to fit your company’s needs.

The checklist should include, at a minimum, the following:

Review of restrictive covenants and related agreements: Give the employee copies of any agreements he signed and remind him of specific noncompete, nonsolicitation, nondisclosure, and related obligations.

Review of non-contractual legal obligations: Remind the employee of his ongoing legal obligations to, for example, keep certain information confidential. The applicable laws vary state-by-state, so make sure to consult with an attorney familiar with your state’s laws.

Review inventory of all company devices: Hopefully, you are keeping an inventory of all company devices issued to the employee. Go through this inventory and make sure he has returned all of these devices.

Company information and documents: Ask whether the employee has any hard-copy documents or electronically stored information on his personal computer, devices, and storage medium. If he does, give a set date for him to return or destroy the documents/information.

Sign acknowledgment: Have the employee sign an acknowledgment form that confirms he is aware of his legal obligations, has returned all company devices, and returned or destroyed all company documents/information.

Gather information: Ask the employee where he will be working next, and in what capacity. Also make sure you have the employee’s updated contact information.

Additionally, prior to the interview, you should work with your IT department to see if the departing employee recently accessed or used trade-secret information, particularly in an out-of-the-ordinary manner. If so, consult with an attorney, since it may be advisable to address this issue with the employee during the exit interview.

Often, this process will allow you to handicap the risk that the departing employee will illegally use your trade secrets and proprietary information. For example, be wary of an employee who refuses to tell you where he will be working next. Or an employee who refuses to attend the exit interview. In cases where you suspect something is amiss, consult with an attorney right away, since time is of the essence in these cases.

Again, there is no one-size-fits-all approach to exit interviews. Speak with with an attorney to develop the process that best fits your company’s needs.

Best Practices for Protecting Trade Secrets: Categories of Employee Contracts

November 7, 2014 By in Advice, Noncompete, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , , , , , , Leave a comment

This is the first in a series of posts addressing best practices for protecting trade secrets. I’m starting with employee/independent contractor contracts, which are one of the most important and effective ways to protect proprietary information.

Contracts are critical for multiple reasons. First, they inform your employees of their legal responsibilities. Second, it’s generally easier to prosecute a breach-of-contract claim instead of relying solely on a trade-secrets misappropriation claim. Third, a competitor that hires your former employee may be more likely to cut ties with that employee when presented with a cease-and-desist letter attaching a contract. Finally, requiring these types of agreements can help you win a misappropriation case, since their existence bolsters the argument that you reasonably protected your trade secrets (a prerequisite to establishing a trade secret under the Uniform Trade Secrets Act).

There are three general categories of contractual protections: confidentiality/nondisclosure, nonsolicitation, and noncompete. Remember that the law applicable to these contracts varies widely from state-to-state, so you need to consult with an attorney who can make sure your agreements comply with and will be enforced under the applicable law.

Confidentiality/NDA

This is the lowest level of contractual protection. It’s also the easiest to implement, since employees are less likely to push back when asked to sign a NDA. From a best-practices perspective, it’s worth at least considering whether to require that all employees sign a NDA. Even low-level employees may have access to some proprietary information. The trick is drafting the language in a way that best defines what precisely needs to be kept confidential. In particular, you need to decide whether to define “confidential information” broadly vs. specifically. Each comes with benefits and risks. Speak with a lawyer who can learn about your unique situation to determine what language best suits your business.

Nonsolicitation Agreements

A nonsolicitation agreement prohibits your employee from soliciting some or all of your current or prospective customers and/or employees once she leaves your company, for a certain period of time. These contracts offer an intermediate level protection, more than a NDA but not as much as a noncompete. It’s best to have all employees with access to proprietary customer information, or who have relationships with prospective/actual customers, sign a nonsolicitation agreement. Again, consult with an attorney who can help craft the scope of the restrictions to your company, based on the applicable law.

Noncompete Agreements

These agreements offer the highest level of protection, since they prohibit your employee from working for your competitors or in your industry, within a certain area and for a certain amount of time. Recently, there has been media coverage of corporate overuse of noncompete agreements. For example, Jimmy Johns took a lot of heat for having its sandwich makers sign noncompete agreements. This type of practice can turn off a judge.

There’s no question that noncompete agreements can be a powerful tool for protecting your proprietary information. But you should consider only requiring that key employees sign a noncompete agreement. The other contracts above may be sufficient to protect against misappropriation by lower-level employees.

You also need to think about the noncompete’s temporal and geographic scope. Depending on the law in your state, an overbroad agreement may not be enforceable. In Florida, where judges are required to narrow an overbroad agreement, I’ve seen judges soured towards employers that overreached when drafting the agreement. Generally, it’s best to limit the agreement the area in which you can prove you compete. An attorney can work with you to determine the proper scope.

Procedure

Deciding to require some or all of the above agreements, and having an attorney draft the agreements, is only the first step. Next, you need to make sure the agreements are actually signed and dated. Then, you need to make sure the signed agreements are properly maintained. You would not believe how often companies forget to have an employee sign or date the agreement. Or how often I’ve seen a company struggle to find the signed agreement when it became necessary to enforce it.

The key is to develop a protocol that can be repeated for each new employee. When the decision is made to hire a new employee, a designated person should be responsible for creating a checklist of all documents that she needs to sign. Of course, the checklist may be different for each employee. Either the person who creates the checklist or another designated person needs to be responsible for making sure all items on the list are actually completed. I recommend including on the checklist the signing, dating, and filing of all required contracts. The responsible person should sign the checklist once everything has been completed, and the checklist should be filed along with the signed documents.

If the contracts are to be signed electronically, your IT people need to set up the software so it will not allow a signature unless all mandatory clickwrap “boxes” are checked. If you are old school and the contracts are manually signed, I recommend keeping an electronic copy along with the original.

In future posts, I’ll discuss specific contractual provisions that should be included in these agreements, as well as best practices for contractual protections when dealing with third parties, like vendors, consultants, and joint-venture partners.

 

Trade-Secrets Interview: Pamela Passman of CREATe.org

March 10, 2014 By in Trade secrets, Trade Secrets In the News, Trade-Secrets Interview Tags: , , , , , , , , , , , 1 Comment

Protecting Trade Secrets is launching a new regular feature, where we will interview people of interest in the trade-secrets world. Starting with Pamela Passman, President and CEO of CREATe.org. “The Center for Responsible Enterprise And Trade (CREATe.org) is a non-profit organization dedicated to helping companies and their suppliers and business partners reduce corruption and IP theft in the forms of counterfeiting, piracy and trade secret theft.”

Recently, I published a blog post discussing a new trade-secrets report published by CREATe.org. I asked Ms. Passman questions about CREATe.org and the report. I’ll be running the interview in two parts. Check back later this week for part 2.

PamelaPassman CREATe org sm (3)Protecting Trade Secrets: Let’s start with some background on CREATe.org. When was it created? By whom? Why? What are its primary activities?

Pamela Passman: While at Microsoft, as Corporate Vice President and Deputy General Counsel for Global Corporate and Regulatory Affairs, I led  regulatory compliance work on a range of issues in more than 100 countries. For nearly six years I also headed Legal and Corporate Affairs in Asia, based in Tokyo, with a focus on Japan, Korea and the People’s Republic of China.

My collective experience—in compliance, corporate leadership, public policy and emerging markets—led me to consider a new approach to two critical issues for companies around the world: intellectual property (IP) protection and anti-corruption.

The genesis for the idea of CREATe.org was based in recognizing that companies such as Microsoft, GE, P&G and many others have spent years developing robust management systems and best practices to appropriately manage and use IP and to prevent corruption. Equally important, was a belief that the private sector can play a powerful role in driving responsible business practices and bridging regulatory gaps where adequate laws do not exist or enforcement is weak.

From these perspectives, CREATe.org was founded in October 2011. As a non-profit organization, CREATe.org works across industries and geographies with a mission to bring leading practices in IP protection and anti-corruption to all companies. The organization works to provide cost-effective and practical assessments, benchmarking, tools and step-by-step guidance for companies, particularly those that lack a track record of developing and implementing compliance programs.

PTS: Does CREATe.org have any policy objectives (e.g., lobbying for legislation, regulations)?

PP: CREATe.org is focused on ways the private sector can more effectively address the issues of IP protection and anti-corruption. We do this by helping companies around the world improve practices and put systems in place to mitigate the risks of IP theft and corruption. CREATe.org is not a lobbying organization.

PTS: What precipitated the “Economic Impact of Trade Secret Theft” report?

PP: In the organization’s first two years, our team gathered insights from companies around the world, gave countless presentations and partnered with think tanks, academics and experts on IP protection and anti-corruption. The challenge of trade-secret theft was a topic that surfaced throughout these exchanges. Companies are finding it increasingly difficult to protect trade secrets, both within companies and among third-parties.

PTS: Let’s turn to some of the details of the report. Your framework to safeguard trade secrets involves bringing key stakeholders into the process. Often, senior executives can be reluctant to participate in such a process. Any suggestions for building enthusiasm among senior executives?

PP: Most senior executives appreciate that trade secrets are key to the company’s value, ability to innovate and compete. For many, the question is where to start? Our intent was to break down a comprehensive approach into steps and provide tools for making the process practical. Providing a clear path and the benefits of safeguarding trade secrets can be helpful for building support internally.

PTS: Similarly, your report acknowledges that protecting trade secrets can require actions that may cut against other company priorities, such as maximizing productivity. For example, increased security measures may result in it taking longer for employees to access documents they need to perform their jobs. Any suggestions for building a corporate culture that values protecting trade secrets on par with other financial priorities?

PP: Each company must determine the correct level of actions appropriate for their corporate culture and then invest in training and awareness campaigns to help educate employees on the importance of protecting company trade secrets. In our work in Asia, for example, we see companies with increasing focus on building awareness within their employee base and key third parties – including  IP protection campaigns that use a variety of media to promote good practices, from posters in the company cafeteria to e-learning and screen savers for desktop computers.

_______________________________

Later this week, Ms. Passman responds to my two critiques of the report and discusses CREATe.org’s next steps.

CREATe.org/PwC Report Makes the Case for Investing in Trade-Secret Protections

February 27, 2014 By in Noncompete, Trade secrets, Trade Secrets In the News Tags: , , , , , , , , , , 2 Comments

“Historically, . . . [trade secret protections] have been viewed as a cost, not an investment.” CREATe.org and PwC recently released a report titled “Economic Impact of Trade Secret Theft: A framework for companies to safeguard trade secrets and mitigate potential threats.” If you read this blog, you should read the report.

Next week, I will be interviewing for this blog one of CREATe.org’s principals responsible for the report. (CREATe.org is a non-profit “dedicated to helping companies and their suppliers and business partners reduce counterfeiting, piracy, trade secret theft and corruption.”)

The report seeks to change the mentality described in the above quote. It starts by estimating the cost of trade-secret theft, and concludes (based on a review of various proxies for trade-secret theft) that economic losses based on trade-secret theft amount to between 1 and 3 percent of GDP. Hopefully, numbers like this draw greater attention to the real risks companies face.

It next outlines of categories of “threat actors” — those who seek to steal trade secrets. These include nation states, malicious insiders (including current and former employees, third-party consultants, and suppliers), competitors, transnational organized crime, and hacktivists (who try to use corporate information for political or social purposes).

Regarding employees, the report notes that “cultural and technological factors may heighten the insider threat in coming years . . . The nature of U.S. employees’ loyalties to their employers is changing because of the much higher rate of lifetime job changes.” The report also identifies “bring your own device” policies as an increased risk.

The report presents a framework for companies to identify and evaluate their trade secrets, audit their current protections, and make value-based improvements to these protections based on measuring ROI. This approach involves key stakeholders, educates them about the risks of trade-secret theft, and helps make the business case for protections.

While I have some issues with the framework (which, if handled improperly, could create documents that may undermine litigation efforts, and would likely need to be altered for many small mid-sized businesses), it provides a comprehensive, incredibly useful starting point and roadmap.

Next week, I’ll examine the report in greater depth when I interview CREATe.org.

New Year, New Trade-Secrets Issues

January 8, 2014 By in General, Noncompete, Trade secrets, Uncategorized Tags: , , , , , , , Leave a comment

Now that New Year’s is behind us, companies face one of the riskiest times of the year for protecting their trade secrets and proprietary information.

As I’ve discussed in the past, employee departures present perhaps the greatest risk of unwanted trade-secret disclosure. And many employees who want to leave wait until after they receive their year-end bonus. With this increased employee movement comes an increased risk of misappropriation.

This is a great time of year to review employee intake and exit procedures. Departing employees need to be made aware of their legal obligations regarding the company’s proprietary or confidential information. This is best done through an exit interview. Whenever possible, a departing employee should sign an acknowledgement of her obligations.

During the exit interview, the company should learn as much as possible about where the employee will be working next. This helps identify situations where proprietary information is at risk. In such situations, an attorney should be consulted. For more details about exit interviews, see this prior post.

Similarly, when hiring new employees, companies need to make sure the new employees will not be violating any restrictive covenants signed with former employers. During the hiring process, potential new hires need to be asked directly whether they have signed any such agreements. And once hired, they should confirm this in writing. If a company wants to hire someone who signed a restrictive covenant with a former employer, the company must consult with an attorney first.

If the new employee will be bound by a restrictive covenant such as a noncompete, make sure it is actually signed. (This may seem obvious, but it’s not uncommon for a noncompete agreement to go unsigned.)

By improving employee intake and exit procedures, companies can significantly reduce the risk of trade-secret misappropriation and expensive litigation.

Trade Secret Injunctions Are Not Automatic — Beware of Equitable Defenses

November 20, 2013 By in Advice, Noncompete, Trade secrets Tags: , , , , , 1 Comment

Companies bringing lawsuits based on a noncompete or misappropriation of trade secrets routinely seek an injunction. For example, a former employer seeking to enforce a noncompete will often ask the court to block the former employee from working for a competitor.

Because an injunction is an equitable remedy—as opposed to a legal remedy, such as seeking money damages—the defendant is permitted to raise certain equitable defenses not available when the plaintiff is solely seeking money damages. This includes the defense of unclean hands, under which a plaintiff is not entitled to equitable relief—like an injunction—if it has acted inequitably or in bad faith. (Important point: these defenses can vary from state to state.)

So if the former employee can convince the court that the former employer acted inequitably, the injunction motion is likely to be denied. As part of their equitable defenses, defendants often argue that they were coerced into signing a noncompete, or that the former employer did not mention the noncompete until after the former employee had quit his prior job.

While it’s impossible to prevent a defendant from lobbing unfounded accusations, employers can take steps as part of the hiring process to circumvent these equitable defenses.

If an employer is going to require a noncompete or other restrictive covenant, inform prospective employees early in the hiring process. If there is a job posting, consider including this requirement. Of course, the employer needs to balance the risk of deterring applicants with the risk of increased difficulty obtaining an injunction. Consider giving prospective employees a handout at the initial interview describing the position and disclosing that any job offer will be subject to signing restrictive covenants. Certainly, any offer letter should make clear that it is subject to the employee entering into all required restrictive covenants.

Too often, companies assume that their restrictive covenants will automatically protect them, without thinking proactively about making sure that they are putting themselves in the best position to enforce these agreements down the road. Taking these simple steps can make a big difference if it becomes necessary to litigate.

I Forgot About My Noncompete!

October 21, 2013 By in Advice, Noncompete Tags: , , , Leave a comment

Recently, I was retained by a client with an all-too-common story: one of its former employees, who signed a noncompete agreement, was working for a competitor and soliciting the client’s customers. I sent the former employee and his new employer a cease-and-desist letter, attaching the signed noncompete.

The next day, I got a call from the former employee. He said that he had forgotten that he had signed the noncompete years before. And he told me that he had quit his job with the competitor (which I had him and the competitor confirm in writing), and that he would no longer do work in my client’s field.

I have no idea whether the former employee really forgot about the noncompete, though I doubt it. More likely, he knew he had signed a noncompete, but he just hoped that my client wouldn’t enforce it. Regardless, this situation shows how important it is to address a departing employee’s noncompete obligations before he leaves the company.

The most efficient, effective way to handle this is through an exit interview. During the interview, the departing employee should be given a copy of his noncompete agreement and asked to sign an acknowledgement of his noncompete obligations. This sends the message that the company is serious about enforcing the agreement, hopefully deterring the departing employee from otherwise disregarding his obligations.

The exit interview also gives a company an opportunity to gather intelligence about whether there is a risk that the departing employee may violate his noncompete. If a departing employee refuses to sign the acknowledgement, or is evasive when asked about his next job, it may be worth consulting with an attorney to figure out how to proceed.

In my client’s case, there’s a good chance that had they conducted an exit interview, the former employee never would have accepted a job with their competitor.

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