NEWSLETTER

Employers spend thousands and sometimes hundreds of thousands of dollars on security and insurance to protect their assets from outside theft.  However, many times employers expend virtually no resources to protect their most valuable assets (confidential, proprietary and/or trade secret information, customer/patient relationships, highly valued employees, extraordinary training, referral sources and goodwill) from what is perhaps the greatest threat facing employers - disgruntled or greedy departing employees.  As the saying goes, the ones who are closest to you are the ones that can hurt you the most.  Nowhere is the expression more accurate than in the case of a highly valued departing employee that has access to your information, customers, referral sources and other highly valued employees. 

While all employers should hope for the best, they should prepare for the worst.  Employers may be surprised to learn that working with an attorney to protect the valuable assets discussed in this article through a noncompetition agreement is inexpensive and may save the employer hundreds of thousands of dollars litigating a flimsy noncompetition agreement.  This article will suggest drafting considerations and tips for noncompetition agreements.  Although the author is a Florida attorney and the suggestions discussed in this article are based upon Florida law[1], the considerations addressed are appropriate for discussion with your attorney irrespective of your home state.  Note that post-employment noncompetition agreements are generally unenforceable under California's Business and Professions Code, with certain very limited exceptions.  Employers with operations in California should consult an attorney experienced in California employment laws to determine the best way to protect confidential business information.   

This article will highlight numerous critical noncompetition agreement drafting considerations, but is not intended to be an exhaustive list of all potential considerations.

Confidentiality Clauses - The simple fact is that every employee, including administrative personnel, who has access to your confidential, proprietary, professional and/or trade secret information should, at a minimum, enter into a confidentiality agreement with your company.  Ex-employees looking to prove that information is not confidential frequently take discovery focused on whether other employees had an obligation to keep information confidential.  If the ex-employee discovers no such obligation, he or she likely will claim that the information lost its confidential status when it was disclosed to others with no confidentiality obligation.  To establish a trade secret, employers typically must show that they took reasonable measures to protect the trade secret; such reasonable measures include confidentiality agreements with employees.  With the guidance of an attorney, employers should also identify the confidential information with enough specificity to put the employee on notice of what is confidential.  Confidentiality clauses that are too vague or broadly worded run the risk of not being enforced.  The agreement should also require the employee to return to the employer without request all confidential information upon termination of employment.  The employee's failure to return such information upon termination becomes another breach and yet another arrow in the employer's quiver.

Geographic Restrictions in Noncompetition Clauses - Although Florida is a blue pencil state, meaning that the court can modify an overbroad geographic restriction to a lesser area, employers should closely analyze what geographic area they seek to protect from competition with their employees (i.e. a mileage radius, county-wide, state-wide, nationwide, etc.)  Employers should recognize that judges are subject to the same opinions and prejudices as the rest of us and that an oppressive or overbearing geographic restriction may cause the judge to strike the restriction completely, or worse, find a way not to enforce the agreement at all.  Also, employers should note that Florida courts (like courts in many other blue pencil states) have the authority to refuse to enforce the geographic restriction at all if the legitimate business interests at issue can be protected through lesser means, such as an order stopping the former employee from soliciting customers or prohibiting disclosure of confidential information. 

Nonsolicitation/Non-Acceptance Clauses - One of the most common flaws that we see in employers' restrictive covenant agreements is that the agreements prohibit the ex-employee only from soliciting the employers' customers; they do not prohibit the employee from accepting business from the employers' customers, irrespective of whether the ex-employee or the customer initiated the post-employment communication.  In Florida, courts have held that employers can prohibit ex-employees from soliciting customers and from accepting business from your customers even if the ex-employee did not solicit or initiate contact with the customer.  If an employer fails to include a non-acceptance provision in its agreement and attempts to enforce the nonsolicitation agreement against the ex-employee, the employer will doubtless spend thousands of dollars trying to prove the employee solicited the customer.  The employee, who may now have the customer relationship, will testify that the customer sought him or her out and thus the ex-employee was free to do business with the customer because there was no solicitation.  The inclusion of the non-acceptance provision will help eliminate the need for this expensive and potentially case threatening discovery.  Among other items, the nonsolicitation/non-acceptance clause should also define in general terms the employer's customers and prospective customers.  Again, your attorney should be able to assist you in drafting these provisions.  Because some states do not permit non-acceptance clauses, you should check with your attorney before inserting such a provision into your agreement.

Non-Piracy Clauses - Departing employees can easily identify other high value employees in your company who will be an asset to your competitor.  In such situations, the departing employee may attempt, either directly or indirectly, to recruit your key employees to the competitor.  The purpose of a non-piracy clause is to dissuade this conduct.  In short, the non-piracy clause prohibits your employees from soliciting other employees to leave your company.  Such clauses are enforceable under Florida law and in many other jurisdictions as well.  Employers should not only include such clauses in their contracts, but should also ensure that the clauses are broad enough to capture numerous forms of recruiting, including suggesting employees to the competitor and assisting the competitor in any way in the recruiting process.

Miscellaneous Provisions - Although noncompetition/restrictive covenant agreements will contain many other provisions and take numerous forms, employers should consider including these additional provisions. 

• Venue.  Assuming your company can establish jurisdiction over the ex-employee in your state, employers should consider including a mandatory venue provision in a location convenient to the employer. 
• Jury Trial Waiver.  The agreement should also contain a conspicuous jury trial waiver clause, assuming such a clause is enforceable in your jurisdiction.  Such clauses are enforceable in Florida if they meet Florida's requirements. 
• Disclosure.  The agreement should require the employee to disclose the agreement to subsequent employers. Such a provision may become important if a competitor hires the ex-employee, because the competitor's knowledge of the agreement may contribute to the employer's potential tortious interference claim.  Alternatively, if the employee did not disclose the agreement, it provides a basis for yet another breach of contract claim against the employee.  The agreement should also specifically authorize the employer to disclose the agreement to subsequent employers, thereby cutting off any claim the employee may have for tortious interference based on this conduct. 
• Attorneys' Fees.  Employers should also consider whether to include a prevailing party attorneys' fees provision in the agreement. In the absence of a contractual provision regarding attorneys' fees, Florida's noncompete statute provides that a court may award attorneys' fees to the prevailing party.  For strategy reasons that should be discussed with your attorney, employers may or may not want a prevailing party attorneys' fees provision in the agreement. 
• Successors and Assigns.  Finally, it is absolutely critical (and statutorily required in Florida) that the employee agrees that the restrictive covenants are enforceable by the employer's successors and assigns, whether by merger, assignment, stock sale, asset purchase agreement, etc.  Under the Florida statute, if the employee does not explicitly agree that the restrictive covenants are enforceable by a successor or assign, the new company may not be able to enforce the restrictive covenants against the employee. 

Conclusion - A well thought-out, well drafted noncompetition agreement can help protect many of your most important assets.  FordHarrison has attorneys in each of the states where we practice who routinely draft and litigate noncompetition agreements for our clients.  We welcome the opportunity to work with you to protect your company's prized assets. 

If you have any questions regarding this article, please contact the FordHarrison attorney with whom you usually work or the author, Ed Carlstedt, who is a partner in our Tampa office, at ecarlstedt@fordharrison.com.  Ed is also the Editor of the Noncompete Newsletter.