One of the biggest fears employers have is a star employee leaving the job after they learned all of the business’ secrets and taking customers and business away to their next position.
While this situation cannot always be prevented, having a few key written agreements in place can greatly reduce the risk of this scenario playing out.
Offer letter/employment agreement
This is the basic agreement that employers need.
Whether in the form of an offer letter or an employment agreement for executives, this document serves to outline the basic terms of employment including:
Requiring new hires to sign offer letters or employment agreements makes disputes about terms of employment less likely.
Disputes are less likely because both parties have a signed written document that contains the most important terms as opposed to a trove of emails with vague terms.
This agreement protects the company’s confidential information from use by the employee or disclosure of this information to 3rd parties.
The key is to properly define what is confidential information. Confidential information can mean:
- intellectual property that is protected by a patent or trademark
- trade secrets aka the secret sauce
- customer lists
- pricing information
- supplier lists
- business plans
- ingredient lists
Without a confidentiality agreement, there is little to prevent an employee from using their employer’s confidential information for their own competing business, or providing it to a competitor.
A competitor is much more likely to try and hire away an employee if they know there is no confidentiality agreement in place restricting access to a competitor’s confidential information.
Non-solicitation and Non-competition agreement
These agreements address the following concerns employers have:
- employees poaching workers and customers, and
- employees competing with the employer after learning the company’s business
In certain states like California, non-competition agreements are generally invalid unless they are prepared in connection of the sale of a business. Nevertheless, even in California a non-solicitation agreement makes sense.
These agreements need to be narrowly tailored in terms of length of time, geography, and industry. Otherwise courts will not enforce them if the employee breaches them.
Any restrictions on someone’s ability to work and make a living will be carefully analyzed. This is in stark contrast to an employee using an employer’s confidential information to compete against their former employer which is generally enforced.
For more information and questions, please contact:
Kresimir Peharda, Partner