As a business and employment lawyer, I see more unnecessary gnashing of teeth over one issue than any other. Employers really worry that their employees are going to steal their business, take their hard-developed systems or customer relationships to their competitors, or leave as soon as they are trained up to provide value to the rival company down the road.
As a small business owner, myself, I can understand this concern. I do not want to teach my associate lawyers all the tricks of my trade or let them manage clients, only to run off to another firm. But honestly, I do not worry about it that much. Why? Because, first, you cannot control everything, so there is not much point losing sleep over the uncontrollable. And, second, I have many safeguards that I put in place to prevent too much power vested in one employee. No employee is irreplaceable, but I treat the good ones well to keep them around as long as possible. That is no special legal secret; it’s just sound business management.
I do use legal and technological safeguards to protect my business. But what safeguard do I not bother with? Covenants not to compete! Foremost, in California, covenants not to compete are not enforceable in employment contracts. That bears repeating: you cannot prevent your employee from competing by contract after they leave your employ. Calling it a non-solicitation agreement does not make it any more enforceable, by the way. California covenants not to compete are enforceable as against your business partners and people from whom you buy a business, but not employees.
In Missouri, non-compete contracts are enforceable. That is indeed the case in most states. But they are strictly limited. They must be narrowly tailored (i.e. conservatively drafted) so as to only prevent realistic harm to the employer and not to restrain trade or the employee’s right to future work. There are no hard and fast rules on how to draft an enforceable covenant, but the general rules are that they must not be too broad in prohibited conduct, included industries, geographical location or too long in time.
But I still do not use them. Why? Because they are not that strong of a deterrent in my experience, except in the limited cases of high-level executives (like CEOs). And employers are actually protected in several ways from truly bad behavior by employees. The law provides for protection in these ways:
- Trade Secrets: Trade Secrets and intellectual property are protected without the need for contracts. Trade Secrets can include product plans and formulations, marketing plans, manufacturing processes, client/customer lists, business practices, and upcoming products. Serious theft by employees carries heavy damages and penalties.
- Fiduciary Duties: As a general matter, employees are not allowed to compete with their employers while in their employ, and owe their employers duties of loyalty and good faith. The work product created by employees during their employ belongs to the employer and the employee cannot take it, including art work, copywriting, and customer lists.
- Non-Disclosure Agreements: Employers can require employees to sign confidentiality agreements during their employ to make clear what information cannot be disseminated outside of the company. Then, if the employee takes it, that is theft. There are basic elements that all NDAs should include: a cogent definition of confidential information; a protocol for handling and sharing confidential information; the length of time that the information remains confidential; contractual penalties for breach. Then you must adhere to the protocols!
Ultimately, it is better to avoid problems than to sue former employees — an expensive, and often ineffective, strategy. My number one recommendation is to control your data and make sure that no employee can copy and steal it. The main way I control data is by maintaining information on cloud servers with encryption and restricting download or access from unauthorized computers. I will draft agreements when necessary, but life is too short to be embroiled in lawsuits with former employees.