Protecting Employer Interests

Many employers try to protect confidential information, customer and employee relationships, inventions, and company property as an employee is going out the door.  While these issues can be addressed as part of a separation agreement and release (see posting on Safe Separations, January 27, 2009), if an employee refuses to sign, then the employer is left without important protections.  An employee is much more likely to be willing to agree to certain restrictions at the inception of the relationship rather than at an involuntary end.

As part of an employment agreement or stand-alone confidentiality and/or non-solicitation, invention, and covenant not to compete agreement, an employer can require an employee to maintain confidentiality of confidential and proprietary information; assign invention rights; refrain from soliciting other employees, vendors and customers; and, refrain from competing.  

Initially, an employer must make sure that there is adequate consideration for the agreement. Commencement of employment, a bonus, or increase in compensation is generally sufficient.  Some states recognize continued employment as adequate consideration.

The enforceability of these agreements also differs from state to state, and depends on the breadth of the restrictions.  Generally, courts balance the restriction on an employee's ability to find future employment against the employer's interests in protecting its employee and customer relationships and competitive edge.  Employers will need to prove that the restrictions are reasonable in duration and geographic scope and that they have protected the information or property they seek to protect, such as by implementing safeguards to restrict access to confidential information.

Some states will not enforce agreements against employees who are terminated for poor performance, under the rationale that if the employee is a poor performer his/her employment elsewhere does not pose a threat.  Courts in California will not enforce restrictions on competition, although non-solicitation and confidentiality agreements may be permissible.  Other states will blue line an agreement that is too broad in duration or scope by crossing out unenforceable language, while other states will revise overly broad language.   Employers implementing these agreements in different states must understand the applicable law.  Multi-state agreements should be drafted in such a way that courts can either remove or revise the language as applicable (with the exception of California). 

Based on the foregoing state law issues, employers should carefully consider what law will apply to the agreement.  Agreements also should provide for injunctive relief, meaning that the employer can restrain an employee from violating any of the restrictions.  The employer should reserve its right to assign the agreement, such as in the event of a sale of the business, so the new entity will be protected as well.

Employers also should take steps to provide for the return of company property upon the termination of employment. Employees should agree to do so, and, where permitted by applicable law, agree that the employer may deduct the cost of unreturned property from final pay.  However, some states do not permit such deductions.

Finally, any agreement should clearly state that employment is at-will, which means that the employer and employee can terminate the employment relationship at any time with or without reason. If the parties intend that the relationship last for a certain time, the duration (and reasons to end the agreement earlier) should be defined clearly.