Prevent the damage from employee defections

Issue: How to stop employees from disclosing confidential data, or jumping to a competitor and stealing your employees.

Benefit: You can stop defectors from raiding your business, but only if you have a valid "restrictive covenant."

Action: Review the five different types of covenants below to decide which works best for each employee.

Your sales manager quit last week. This week, your two best sales reps quit, too, and they're following the manager to your biggest competitor.

Can you run to court and stop your manager from joining the competitor and stealing your employees?

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Unless you can prove that those employees stole your customer lists or other confidential data, you typically can obtain a legal injunction only if the employees' have signed a legally valid "restrictive covenant."

While some agreements should include all five of these restrictive covenants, many should not. Ask your labor attorney to determine which provisions would be necessary and legally enforceable.

The timing of restrictive covenants is critical. In some states, such agreements are valid only if they're signed at or before the start of the employment relationship, or if employees receive something of value at the time of signing.

Restrictive covenants: 5 flavors

1. Noncompetition agreements prohibit employees from working for a competitor. To be legally valid, noncompetes must be reasonably limited in time and geographic scope.

For example, a court would refuse to enforce a noncompete that prevents an employee from working for any competitor in a 1,000-mile radius for up to five years after leaving. That same agreement, however, may be enforceable if it was limited to six months and 50 miles.

2. Nonsolicitation agreements prohibit ex-employees from soliciting your customers. Again, to be legally valid, these agreements must set reasonable time limits.

The definition of "employer's customers" must be precise and reasonable. Examples: Does this term include customers for whom you've provided services during the past two years (or 10 years)? Does it include actual and potential customers?

3. Anti-pirating agreements state that an employee can't, during the employment relationship and for a reasonable period thereafter, solicit any employee to become employed by a competitor. One to two years (or less) is a generally accepted standard.

4. Confidentiality agreements ban employees from disclosing confidential information and trade secrets to anyone outside of your company. Confidentiality pacts don't need to have time limits; the obligation could last forever.

In most states, employees have a confidentiality duty even in the absence of a confidentiality agreement. But it's still best to have a written agreement for all employees because it allows you to set a definition of "confidential information" that fits your business.

5. Patent assignment agreements are designed to protect your organization's intellectual property rights. While this type of agreement isn't appropriate for an employee who is strictly a salesperson, it's crucial for employees whose jobs entail developing new products.