This article is not legal advice but should be considered as general guidance in the area of employment and corporate law. Bryan Dench, Amy Dieterich, Jordan Payne Hay, and Rebecca Webber are employment and labor law attorneys; others at the firm handle business and other matters. You can contact us at 207.784.3200. Skelton Taintor & Abbott is a full service law firm providing legal services to individuals , companies, and municipalities throughout Maine. It has been in operation since its founding in 1853.
Can they do that?
I have an employee who I have spent years showing our techniques and now . . .he’s left and started his own business and is contacting my company’s clients! Can he do that?
The answer is: it depends. It depends on what agreements you have had the employee sign. If they have no non-solicitation agreement, an agreement that they cannot contact clients for business, you can take action. In fact, that agreement can also forbid the employee from contacting (soliciting) your employees to join them. It makes sense to have a non-solicitation agreement that covers both issues. Such an agreement is much easier to enforce than a non-competition agreement, which actually limits what a person can do for work and where. Courts are more sympathetic to an argument that a former employee cannot do their type of work for a long time over a broad area. They are less sympathetic to an employee leaving a company and then turning around and trying to take clients and employees.
Here is the difference between non-solicitation of clients vs. non-solicitation of employees:
non-solicitation of clients
Employee will not:
(a) Canvas, solicit, contact or call upon any present customers or clients or business connections or sources of __________ business of Employer, directly or indirectly, in any capacity (including, but not limited to as an individual for his own account, or as a partner or joint venturer, or as an employee, or sales person for any other person, entity, corporation, partnership or association, or as an officer, director, or shareholder of a corporation, or as a proprietor, consultant, promoter, purchaser, or in any other capacity, any business or other entity), for the purpose of soliciting any _________ business . . .
non-solicitation of employees
In consideration of his employment to _____________ for Employer’s business, Employee agrees that, for a period of two (2) years following the termination of his employment with Employer, whether his termination be voluntary or not, Employee will not solicit or encourage any employee of the Employer to work for any other person, firm, Employer or other entity. For a period of two years, Employee also will not talk to or discuss with any employee of Employer about leaving Employer to work where Employee is working.
In terms of enforcement, the agreement needs to address whether your company can go right to court for an “injunction” (a court order that tells the former employee they must stop what they’re doing), whether mediation and/or arbitration are required, and who must pay what costs and attorneys’ fees. If the agreement does not say that the former employee has to pay the costs and fees of having to enforce the non-solicitation agreement, you may end up spending a lot of money getting the employee to abide by the agreement you had them sign with no option to seek reimbursement from the violating ex-employee. Ok, so the agreement is getting longer – yes, but some of these provisions have big consequences.
For example, a clause that always should be present in just about every agreement should be the provision that the agreement includes all the understandings and deals between the parties on that topic and there are no other agreements, including oral agreements. Without that clause, an employee might argue later, sure, I signed that, but Vice President X told me that I could get a commission on certain sales in a conversation last month. You need language that eliminates the ability to argue there is some oral agreement out there that undercuts the extent or enforcement of your non-solicitation deal.
Finally, without getting to the topic of the harder-to-enforce non-competition agreements, you can limit an employee’s use of your company’s trade secrets or other confidential data. Such agreements go hand-in-hand with the non-solicitation provisions because they target what clearly belongs to your company. Such provisions need to be tailored to your particular business but the time spent doing that is well worth it. If your company has particular processes that are truly trade secrets, you need to take such action to protect them in order to be able to argue that they are, in fact, secrets belonging to your company. An absence of effort can be interpreted as agreement that the processes or formulas or designs are not so secret after all. Provisions should prevent future use of trade secrets, benefitting financially from any use of secrets, as well as disclosure of any confidential information or trade secrets. This requires a number of paragraphs, each of which should be tailored to your business. For example, a non-disclosure of secrets might start like this:
Employee expressly acknowledges and agrees that, at no time during and/or after the term of his employment with Employer, will he disclose to any other person, entity, corporation, partnership, agency, employee, sub-contractor, independent contractor or association, or as an officer, director, or shareholder of a corporation, any proprietary and/or confidential information provided to him or obtained by him as a result of his employment with Employer, including, but not limited to, . . . [SPELL OUT HERE IN DETAIL WHAT IS COVERED AND IS CONFIDENTIAL, TAILORED TO YOUR BUSINESS]
The Defend Trade Secrets Act (“DTSA”), which allows companies now to go to federal court for trade secret litigation, has increased the ability to pursue theft of company secrets and confidential information (which includes client lists and data). It does also impose some requirements, such as notifying employees that they can turn over such information to the government if there is an agency investigation or notifying employees they can turn over information to a court if “under seal.” But even without some of those notifications, an employer can still go ahead in court. It just may not be able to get some of the damages allowed by the DTSA, which include double damages and attorneys’ fees, no small advantage!
The bottom line is that companies should think about what might happen once employees leave and what agreements could help protect them. Without such agreements, there is much less that can be done. At the same time, any agreement should be tailored to the situation, which includes not just tailoring to the specific business interests to be protected but also to the type of employee who might be signing and what might make them more (or less) likely to sign.