Alternatives to the Non-Compete

A great article over at Computerworld.com regarding the treatment of non-competes given today’s economy. It is very interesting reading. According to the article, courts have been reluctant to enforce non-compete agreements (in those states where enforcement is typical) because of the bad economy and the difficulty that people are
The article then provides several alternative tools to protect your company’s trade secrets which do not revolve around non-compete agreements. having just finding a job, in general.

The article first suggests that all companies perform a “trade secrets audit”–a suggestion I wholeheartedly endorse. A trade secret audit can provide the following: “Once all such assets are identified and valued and the risk of their loss has been assessed, the company designs and implements a comprehensive protection program, typically involving some combination of written agreements (called “restrictive covenants”), written policies concerning the appropriate use of company information, defined security measures and a detailed enforcement scheme, including not only enforcement of each of the applicable agreements, but also reliance on both established and novel legal claims and theories.”

The article then identifies some of the alternative forms of protection that may help in an economy where non-competes are not being enforced:

* “Garden leave” clauses: A type of noncompete agreement that compensates an employee during the period that the employee’s competitive activities are restricted. In a traditional garden leave clause, the employment relationship technically continues during the restricted period. However, the legality of such an obligation remains dubious.
* Forfeiture-for-competition agreements and compensation-for-competition agreements: Agreements by which an employee either forfeits certain benefits or pays some amount of money if he engages in activities that are competitive with his former employer.
* Forfeiture agreements: Agreements by which an employee forfeits benefits when his employment terminates, regardless of whether he engages in competitive activities.
* Nondisclosure/confidentiality agreements: Agreements by which an employee agrees not to use or disclose an employer’s confidential information.
* Nonsolicitation agreements: Agreements by which an employee agrees not to solicit — and, if well drafted, not to accept — business from the employer’s customers.
* Antipiracy agreements: Agreements by which an employee agrees not to solicit — and, if well drafted, not to hire — the employer’s employees.
* Invention assignment agreements: Agreements by which an employee assigns to the employer any potential inventions conceived of during employment.

Any or all of these can be important for your business. While the requirements for enforcement are similar to non-competes, “courts are nevertheless more likely to enforce these agreements than noncompete agreements. For example, garden leave clauses are more likely to be enforced because of the palliative effects of the compensation paid during the restrictive period. Similarly, forfeiture-for-competition and compensation-for-competition agreements are more likely to be enforced because they impose only financial disincentives — not a bar — to an employee’s employment by a competitor.”

Read the whole thing. If you have any questions about your own trade secrets protection plan, please contact me and I would be more than happy to discuss.