non-competes: should you have them, and what to do when faced with one? jonathan a. keselenko...
TRANSCRIPT
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NON-COMPETES: SHOULD YOU HAVE THEM, AND WHAT TO DO
WHEN FACED WITH ONE?
Jonathan A. Keselenko
PartnerFoley Hoag LLP
February 6, 2008
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What is at stake?
Every Day, Your Intellectual Property Walks Out the Door
Employee Mobility –Competition Ability to Hire
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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
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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
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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!
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Types of Restrictive Agreements
Nondisclosure/Inventions Agreements Noncompetition Agreements Nonsolicitation Agreements
Customers Employees Suppliers
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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
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Interests
Protection of Customer Good Will, Relationships Protection of Trade Secrets/Confidential
Information
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What Information is Protectable?
Customer Information Manufacturing Processes and Methods Business/Financial Information
Sales Figures Marketing Forecasts Future Plans
Computer Programs and Data Compilations
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What is Not Protectable?
General Knowledge/Skills/Abilities Publicly Available Information Information Resulting From Reverse Engineering
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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”
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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”
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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
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Tips for Maximizing Protection (Continued)
Act Quickly/Aggressively to Protect Your Rights Investigate Employee’s Actions Letters to Former Employee, New Employer Litigation
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Tips for Maximizing Protection (Continued)
Consider State of Employment State laws very widely The California Problem Options
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Menu of Litigation Options
Immediate Request for Injunction Expedited Discovery Arbitration?
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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
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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
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Hiring Employee With Non-Compete…(Continued)
Document expectations/restrictions Employee warranties
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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
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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
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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
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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
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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
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Should Non-Competes Be Illegal?
Proposals in Massachusetts The California Model
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Questions/Discussion
Jonathan A. Keselenko, Esquire
Foley Hoag LLP
155 Seaport Boulevard
Boston, MA 02210
Phone: (617) 832-1208
Fax: (617) 832-7000