Tag Archives: non-compete agreements

What Are Trade Secrets ?

You are a business owner. You are making investments into your business, most often time and money. You want to protect your investment from thieves. You know that thieves are all around you.  If you are a smart and savvy business person you know that you employees are potentially thieves, your partners are potentially thieves and your competitors are almost definitely thieves. That awareness is the first step in protecting your business. What, exactly, is it that you want to protect and how do you protect it? What is a trade secret and what will the Courts allow you to protect as a business owner.

The first thing we need to do is to define what is a protectable trade secret. The most common example, and perhaps the most easily understood, is the recipe for Coca – Cola. Let’s face it, there is only one Coca-Cola and nothing else tastes quite like it. How do you feel when you are in a restaurant and you order a Coke, or a Diet Coke, and the waitperson asks: “Is Pepsi alright?” Most people think, or actually say, “No, it’s not.” Why? Because it is not the same thing. There is only one Coke and everyone knows it.

The fact that you can only but Coke from Coke is not an accident. It is part of a well-considered plan, conceived of by Coke, to keep their Coke recipe a secret. A “secret” means that almost no one can know what it is. Do you think that the average person on the Coke assembly line knows how to brew up Coke in their basement? I doubt it. Those employees don’t know the secret recipe for Coke because that recipe is likely locked away in vault somewhere.

So let’s assume that the product you create in your business is not Coke. Is it entitled to protection?

The elements of a claim for misappropriation of trade secrets under Florida’s Uniform Trade Secrets Act, Fla. Stat. § 688.001 et seq are: “(1) the plaintiff possessed secret information and took reasonable steps to protect its secrecy and (2) the secret it possessed was misappropriated, either by one who knew or had reason to know that the secret was improperly obtained or by one who used improper means to obtain it.” Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 136 F.Supp.2d 1271, 1290 (S.D.Fla.2001). “To qualify as a trade secret, the information that the plaintiff seeks to protect must derive economic value from not being readily ascertainable by others and must be the subject of reasonable efforts to protect its secrecy.” Id.

 

  1. What is secret information ?

 Many things can be considered secret information – for example, design specifications for a computer system are considered trade secrets. Confidential customer lists compiled by a business can be considered a trade secret provided that the company undertook efforts, which can be documented, to compile the list. It is not enough to just log into Google and pull up a list of names; anyone with a computer can do that. In order to be a protectable trade secret, it is the effort which matters, not just the result.

 

How do you protect your trade secrets ? Have your employees sign a Confidentiality Non-Compete Agreement. The Agreement should specify what the company considers its trade secrets to be, that the company intended to, and did, create those secrets and has taken steps to protect them. Consider including something in the employee manual, which all employees must sign, which reiterates this. In this way, if there is ever a dispute about the terms of the contract, or even whether the Confidentiality Agreement or non-compete was signed, the company has a ready fallback position  – the signed employee manual. This document makes the company’s position clear and makes it known that the company’s position on trade secrets applies to everyone – from the folks that work in the factory to senior management. In this way, if something slips through the cracks, and there is no signed Confidentiality Agreement, at least the company policy is expressed somewhere in writing. The bottom line is that the company must do something, and be able to prove that it did something to actively protect its trade secrets. The best remedy is a written agreement coupled with a clearly expressed corporate policy.

 

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It’s Bonus Time ! Top Ten Tips for Business Owners to Follow Regarding Their Employees.

This is the time of year where companies begin the process of evaluating their employees, their businesses and their future.  It is often a period in the life of a company where managers take stock of themselves and analyze those employees who have excelled and those who have not.   Compensation is often tied to an employee’s ability to excel during the course of the year and there are several things which companies can do in order to maximize employee efficiency and insulate themselves from future legal problems.  Here are some time worn techniques for preventing legal problems with your employees during  the coming year.

  1. Provide Written Job Descriptions.

The first question a new employee will ask is – what am I supposed to do?  This is a reasonable question and one which an employer should be readily able to answer.   An employee’s job should not be a guessing game.   Instead, the employer should be able to provide a written job description setting forth, in detail, what is expected.   The job description should be specific but not too restrictive so as to preclude an expansion of the employee’s responsibilities at a later time if necessary.   The job description should clear up issues regarding the employee’s responsibilities and will likely lessen friction between the employee and his or her co-workers.

  1. Do a Background Check.

Convicted felons will want a job at your company.   When these people walk into your office, they may not look like convicted felons but it is up to you to determine that.  You can usually find this out by doing a background check which may cost no more than $100. (A Google search and a check of a prospective employee’s Facebook page may also help).

Naturally, there are convicted felons who have reformed themselves and are entitled to a second chance.   The question you have to ask is whether you want to be the person who gives it to them.   You take on additional risk when you hire somebody from this category because, in a subsequent lawsuit, it is likely that a lawyer will use this against you in the event that it turns out that this particular employee engaged in wrongdoing while employed at your company.   Counsel’s argument will be that you should have known better.

  1. Provide Training.

There is nothing that a new employee will like less than being dumped into a cubicle by their new supervisor without any training. This sends the employee an implied message – “we don’t care about you” or just “figure it out.” No employee wants to believe that their new employer does not care about them; after all, if the employer does not care about the employee, than why should the employee care about the company ? Someone needs to walk the employee through an average day at the office. How to work the computer programs, the copy machines, the fax machine (if you still use one). This will ultimately save the company time and trouble.

  1. Consider a Non-Compete Agreement.

Depending on the type of business you run, Non-Compete Agreements can be extremely valuable.   After all, you do not want your employee walking off with all of your clients in the event that you determine that the employee has to be terminated or that the employee leaves on his or her own accord after receiving an unsatisfactory bonus [1] Non-Compete Agreements generally have to be tailored reasonably to a limited area and time in order to prevent the employee from later arguing that you are trying to prevent them from working altogether and forever (Courts don’t like that).   The Courts have the power to strike down agreements which are overly restrictive.   Accordingly, before having an employee sign a Non-Compete Agreement you should consult with counsel.

  1. Maintain Clear Lines of Authority.

In some companies, it is often unclear who is the boss.   This is a circumstance that is fraught with peril.   Someone has to be the boss and it should be clear who that person is.   Each employee should have a supervisor to whom they report and who can supervise their work.   An employee working alone is a recipe for a problem.

  1. Provide Constant Feedback.

No employee wants to be surprised at their annual performance review.  There is certainly a risk that this will occur if the employer fails to provide proper feedback during the course of the year.   In many companies, an annual performance review is simply insufficient and reviews should be conducted more than once per year.   In this manner, there is a greater likelihood that an employee who may be underperforming will improve.  Why wait until December to give an employee feedback when you already know what you may want to tell them in June? 

  1. Maintain an Employee File.

Even the smallest companies should maintain a personnel file for each employee.  In the file your company should include the employee’s application, health insurance information and related data.  It is also important that written performance reviews be placed into the file together with any memoranda created by the company regarding the employee’s performance (good or bad).

It is important that the employee’s file be “papered” before termination takes place since this will likely assist you in later combating a discrimination claim.

  1. Be careful about discriminating and/or retaliating.

Federal law creates certain protected categories of individuals.   The law protects against discrimination based upon age, gender, race and disabilities, to name a few.   Accordingly, the employer should be careful to make certain that if an employee is being terminated, or is being discriminated against in some other way, that an even handed approach be utilized. In these circumstances, the employee’s employment file will be critical.   That is the first question an employment lawyer will ask after a lawsuit is filed – – is there an employee file and what exactly is in there?

  1. Maintain an Employee Handbook.

Employee handbooks can be a wonderful tool to settle all sorts of issues.   An employee handbook will detail the company’s non-discrimination policies and provide options for the employee to complain if he or she is having a problem with his or her supervisor.   It will also provide a place where sexual harassment complaints can be channeled.   The employee handbook is often a useful exhibit to be used in an employment discrimination trial and allows the employer to state:   “We provided mechanisms for complaint and the employee did not follow them.  We are a non-discriminatory company and that point is emphasized in our employee manual.”  See Exhibit “A”.  This type of evidence can be very persuasive in an employment discrimination trial in which the company’s culture and attitude are at issue.

  1. The Humane Termination.

Sometimes it is necessary to terminate an employee from their job.  While this is, most often, a difficult decision, and a task that almost no one wants to perform, there are ways to handle this which will make it less likely to result in a lawsuit.  It is often a good idea to contact counsel prior to an employee termination particularly in a case in which you believe there may be some difficulty.   As a general rule, it is always a good idea to have more than one person present. Therefore, there will be some corroboration as to what the employee is told during this difficult moment.

Generally, it is a good idea to offer an employee severance pay.   This will help minimize the employee’s anger or surprise. In exchange, it is reasonable to ask the employee for a release. In cases of older workers (over forty), it is important to include certain language in the severance agreement and release which complies with the Older Worker’s Benefit Protection Act.   Accordingly, terminating an employee of an advanced age is often not a simple matter and should not be taken lightly.  

Conclusion.

In sum, there are certain rules to follow when hiring, supervising and terminating employees which will prevent litigation and massive expenses later on.   Regular communication with competent counsel on this point could prove invaluable.


[1] These types of agreements may be unenforceable in the legal profession.

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IF YOU WANT TO PROHIBIT YOUR FORMER EMPLOYEES FROM COMPETING AGAINST YOU, YOU BETTER HAVE THEM SIGN ON THE DOTTED LINE

 You have just hired a new employee.   Part of their job responsibility involves extensive contact with your clients.  You want to encourage the employee to form relations with your clients and provide excellent customer service.   You do not want to stand and monitor the employee to ensure that the employees become close, but not too close, to your clients.   You can prohibit your employees from later competing against you, and stealing your customers, if you are careful.   However, the rules that the Courts apply in this area make drafting a non-compete agreement, without the benefit of counsel, a  really bad idea. 

1.            Your Employee Must Sign a Non Compete Agreement.

     There is no such thing as an oral agreement not to compete. There is no such thing as a handshake deal. An agreement which prohibits a former employee from competing against you may not be enforced unless that employee has signed a contract reflecting that agreement.   Accordingly, a business owner with customers to protect should have competent counsel prepare a Non-Compete Agreement which should be presented to the employee for signature before the employee’s first day of employment.   This is the time in which an employee is typically most eager or positive about the job and most likely to sign a non-compete agreement.   If you decide to provide the employee with this contract months, or even years later, it is possible, perhaps likely, that they will be hesitant to sign it. At this point, the employee has already developed relationships with your customers and, therefore, it is likely that the employee will regarding a non-compete agreement, presented at this stage, as a sign that he or she is likely to be fired or as an indicator that you do not trust him or her.

  1. The Non-Competition Agreement Must be Carefully Drafted.

     There is no question that the law of Non-Competition Agreements was created by lawyers and Judges.   This is because the law is extremely detailed and nuanced and is a minefield for lay people.   Specifically, both the statutes and the case law are continually changing with respect to what constitutes reasonable restrictions on an employee’s post-employment conduct.  Generally, contracts which restrict an employee from working for a period in excess of two years are presumed to be unreasonable. Therefore, the carefully worded restrictive covenant will restrict an employee’s ability to compete for a more limited period of time, generally, one year.

     An employment contract may also be used to prohibit an employee from competing against a former employer within certain geographic areas. A two county radius will generally be enforced. However, a provision which prohibits an employee from competing in the entire United States or worse, the entire world, will generally be unenforceable. If the Court finds that the area restricted is, per se, unreasonable, the Court may re-write the provision to bring it into compliance with existing law. This is one of the few instances in which a Court is permitted to re-write the provisions of a contract.

     Generally, a company can only protect by contract its “legitimate business interests” with existing customers.  A non-competition agreement cannot be used to protect a company’s relationships with former or prospective customers.  This is because the purpose of a restrictive covenant is to protect “legitimate business interests” and relationships with former or prospective customers are simply too speculative to be termed “legitimate.”

     Non-competition agreements for employees appear, on the surface, to present a relatively straightforward matter. If you read the cases, however, you will see that this is not the case. Defining the boundaries of acceptable non-competition agreements has been a fertile source of litigation in which it is likely that millions of dollars have been spent. The wise and cost conscious employer will seek out competent counsel to draft an effective non-compete agreement which will be signed by the employee at the commencement of his or her employment. Waiting for the employee to be quit, or terminated, is generally a bad idea. 

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It’s Bonus Time ! Top 10 Legal Tips for Business Owners to Follow

This is the time of year where companies begin the process of evaluating their employees, their businesses and their future.  It is often a period in the life of a company where managers take stock of themselves and analyze those employees who have excelled and those who have not.   Compensation is often tied to an employee’s ability to excel during the course of the year and there are several things which companies can do in order to maximize employee efficiency and insulate themselves from future legal problems.  Here are some time worn techniques for preventing legal problems with your employees during  the coming year.

  1. Provide Written Job Descriptions.

The first question a new employee will ask is – what am I supposed to do?  This is a reasonable question and one which an employer should be readily able to answer.   An employee’s job should not be a guessing game.   Instead, the employer should be able to provide a written job description setting forth, in detail, what is expected.   The job description should be specific but not too restrictive so as to preclude an expansion of the employee’s responsibilities at a later time if necessary.   The job description should clear up issues regarding the employee’s responsibilities and will likely lessen friction between the employee and his or her co-workers.

  1. Do a Background Check.

Convicted felons will want a job at your company.   When these people walk into your office, they may not look like convicted felons but it is up to you to determine that.  You can usually find this out by doing a background check which may not cost more than $100. (A Google search and a check of a prospective employee’s Facebook page may also help).

Naturally, there are convicted felons who have reformed themselves and are entitled to a second chance.   The question you have to ask is whether you want to be the person who gives it to them.   You take on additional risk when you hire somebody from this category because, in a subsequent lawsuit, it is likely that a lawyer will use this against you in the event that it turns out that this particular employee engaged in wrongdoing while employed at your company.   Counsel’s argument will be that you should have known better.

  1. Provide Training

There is nothing that a new employee will like less than being dumped into a cubicle by their new supervisor without any training. This sends the employee an implied message – “we don’t care about you” or just “figure it out.” No employee wants to believe that their new employer does not care about them; after all, if the employer does not care about the employee, than why should the employee care about the company ? Someone needs to walk the employee through an average day at the office. How to work the computer programs, the copy machines, the fax machine (if you still use one). This will ultimately save the company time and trouble.

  1. Consider a Non-Compete Agreement.

Depending on the type of business you run, Non-Compete Agreements can be extremely valuable.   After all, you do not want your employee walking off with all of your clients in the event that you determine that the employee has to be terminated or that the employee leaves on his or her own accord after receiving an unsatisfactory bonus ?[1] Non-Compete Agreements generally have to be tailored reasonably to a limited area and time in order to prevent the employee from later arguing that you are trying to prevent them from working altogether and forever (Courts don’t like that).   The Courts have the power to strike down agreements which are overly restrictive.   Accordingly, before having an employee sign a Non-Compete Agreement you should consult with counsel.

  1. Maintain Clear Lines of Authority.

In some companies, it is often unclear who is the boss.   This is a circumstance that is fraught with peril.   Someone has to be the boss and it should be clear who that person is.   Each employee should have a supervisor to whom they report and who can supervise their work.   An employee working alone is a recipe for a problem.

  1. Provide Constant Feedback.

No employee wants to be surprised at their annual performance review.  There is certainly a risk that this will occur if the employer fails to provide proper feedback during the course of the year.   In many companies, an annual performance review is simply insufficient and reviews should be conducted more than once per year.   In this manner, there is a greater likelihood that an employee who may be underperforming will improve.  Why wait until December to give an employee feedback when you already know what you may want to tell them in June? 

  1. Maintain an Employee File.

Even the smallest companies should maintain a personnel file for each employee.  In the file your company should include the employee’s application, health insurance information and related data.  It is also important that written performance reviews be placed into the file together with any memoranda created by the company regarding the employee’s performance (good or bad).

It is important that the employee’s file be “papered” before termination takes place since this will likely assist you in later combating a discrimination claim.

  1. Be careful about discriminating and/or retaliating.

Federal law creates certain protected categories of individuals.   The law protects against discrimination based upon age, gender, race and disabilities, to name a few.   Accordingly, the employer should be careful to make certain that if an employee is being terminated, or is being discriminated against in some other way, that an even handed approach be utilized. In these circumstances, the employee’s employment file will be critical.   That is the first question an employment lawyer will ask after a lawsuit is filed – – is there an employee file and what exactly is in there?

  1. Maintain an Employee Handbook.

Employee handbooks can be a wonderful tool to settle all sorts of issues.   An employee handbook will detail the company’s non-discrimination policies and provide options for the employee to complain if he or she is having a problem with his or her supervisor.   It will also provide a place where sexual harassment complaints can be channeled.   The employee handbook is often a useful exhibit to be used in an employment discrimination trial and allows the employer to state:   “We provided mechanisms for complaint and the employee did not follow them.  We are a non-discriminatory company and that point is emphasized in our employee manual.”  See Exhibit “A”.  This type of evidence can be very persuasive in an employment discrimination trial in which the company’s culture and attitude are at issue.

  1. The Humane Termination.

Sometimes it is necessary to terminate an employee from their job.  While this is, most often, a difficult decision, and a task that almost no one wants to perform, there are ways to handle this which will make it less likely to result in a lawsuit.  It is often a good idea to contact counsel prior to an employee termination particularly in a case in which you believe there may be some difficulty.   As a general rule, it is always a good idea to have more than one person present. Therefore, there will be some corroboration as to what the employee is told during this difficult moment.

Generally, it is a good idea to offer an employee severance pay.   This will help minimize the employee’s anger or surprise. In exchange, it is reasonable to ask the employee for a release. In cases of older workers (over forty), it is important to include certain language in the severance agreement and release which complies with the Older Worker’s Benefit Protection Act.   Accordingly, terminating an employee of an advanced age is often not a simple matter and should not be taken lightly.  

Conclusion.

In sum, there are certain rules to follow when hiring, supervising and terminating employees which will prevent litigation and massive expenses later on.   Regular communication with competent counsel on this point could prove invaluable.


[1] These types of agreements may be unenforceable in the legal profession.

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