Nondisclosure and Noncompete Policies: What You Need to Know
Legal expert Ken Kirschenbaum offers tips to help you traverse the tricky area of nondisclosure and noncompete policies.
A security company owner wrote me: Recently, I let go an independent contractor who had worked with me for eight years due to behavior issues. I figured I was covered by noncompete and nondisclosure forms he had signed with my company. However, I found out that he is now working for a direct competitor, calling on my customers and even persuaded competitors to offer a job to my secretary. What are my options? Can I or an attorney send a warning letter to him and his new employer? Is that feasible and likely to work?
Here was my response: The “warning letter” should be to you! There must be something in the air or water, because all of a sudden I am getting calls and emails like this every week. Restricting someone from competing with you is not easy; in fact, it’s tricky and often legally technical. One shoe won’t fit every foot.
And, while the language or contract terminology can be crafted and drafted to meet all of the legal issues, particularly facts unique to the relationship will be germane to enforcement.
I fielded a call the other day regarding an ex-employee who was “stealing” accounts. According to the client, the rogue ex had signed a “nondisclosure agreement.”
My immediate thought was, well that’s appropriate for someone looking to buy your business, someone looking over your business records, but not an employee who you want to restrict.
Having not been able to see or review the “noncompete and nondisclosure form” you had your former employee sign, I of course have no idea what it states. It could be enforceable, but even so would likely prove too costly to enforce.
Employees and subcontractors can be restricted from retaining or disclosing information, data and documents that the employer treats as confidential and proprietary. Public information is not subject to restriction.
So employees and subcontractors should not retain customer lists, pricing, written policies and procedures, other employee information, etc. — in other words, information that someone from the general public would not have. Restriction on competition is, however, another matter.
Generally, anti-competition agreements will be enforced only to the extent necessary to protect the rights of the employer (or a buyer in the case of a sale) and so as not to prevent the restricted party from earning a livelihood. There will be a balancing of rights between the party looking to enforce the restriction and the restricted party.
Often the analysis is subtle, trying to carve out territory or fashion a time period. If the restriction is overly broad, unnecessary from the employer’s perspective and unduly harsh to the restricted party, then the agreement won’t be enforced.
Kirschenbaum & Kirschenbaum Standard Form Agreements (alarmcontracts.com) cover nondisclosures and noncompetes. They are included in the following forms you will find there:
■ Employees are covered by the Employment Agreement and Employee Handbook
■ Subcontractors are covered by the Subcontract Agreement
■ Potential buyers and those looking at your business records are covered by the NDA (Nondisclosure Agreement)
■ Sellers are covered by the Asset Purchase Agreement (or Stock Purchase Agreement)
■ Subscribers are restricted from hiring your employees in the Standard Form All in One Agreements
Each of those agreements has an Arbitration Provision so proceedings can be commenced almost immediately once you request intervention and handling of your issue.
Using the Standard Form Agreements makes it straightforward to know what the terminology is and what steps need to be taken to commence proceedings.
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