In today’s information-based economy, it is more important than ever to protect your confidential business information. Having the right agreements in place with your employees is a critical part of any company’s strategy to protect these assets. Employers should consider whether and how to use non-compete, non-solicitation and confidentiality agreements with their employees to protect their trade secrets and customer relationships.
Non-compete agreements provide the broadest potential protection. A non-compete agreement generally prohibits an employee from working for anyone who competes with your business. Under Michigan law, these agreements are enforceable so long as they are reasonable in duration and geographic scope, and protect a legitimate competitive business interest. (Laws of other states vary, so if you have employees outside of Michigan you must consider the laws in the state where they are located as well.) Generally, in Michigan, non-competes of one to two years will be found reasonable, as will those that limit the geographic scope to places where the company actually does business. And courts will generally find a legitimate competitive business interest worthy of protection where the individual’s new employment threatens either a disclosure of the company’s trade secrets, or interferes with customer relationships.
This is not to say, however, that simply having a signed non-compete agreement can guarantee you that a departing employee will never be allowed to work for a competitor. Lawsuits involving enforcement of non-compete agreements are “equitable” in nature, meaning that judges have discretion to decide what they believe is fair in a particular case. Among other things, a judge will look at:
- Who is the departing employee? Courts are more likely to enforce a non-compete against higher level employees and those who are well compensated, as opposed to those with lesser salaries or responsibilities.
- Who is the new employer? Courts are more likely to enforce a non-compete if a new employer is a direct and significant competitor, as opposed to someone you cross paths with only occasionally in the marketplace.
- What were the circumstances of the employee’s departure? Courts are more likely to enforce a non-compete if the employee failed to disclose their plans for new employment, or took company records with them on their way out (as opposed to an employee who openly discloses their future intentions and is careful to return all company records before departing).
Because non-compete agreements are not “bulletproof,” and because a requirement to execute a strict non-compete agreement may affect your ability to recruit top talent in some industries, it is important to consider other options to protect these interests as well. One such option is a non-solicitation agreement.
A non-solicitation agreement does not prevent a former employee from working in your industry, but instead requires the individual to refrain from soliciting any of your customers for a period of time. Courts are more likely to fully enforce a non-solicitation agreement, as they acknowledge it takes time, effort and resources to build customer relationships. They also acknowledge that it would be unfair to allow an employee who built client relationships with your time and resources to immediately call on those same clients on behalf of their new employer. When an employee departs, courts recognize fairness in providing the former employer with time to solidify their customer relationships through new representatives. One to two year non-solicitation agreements are routinely upheld and may provide the protection your business needs without creating the potential recruiting problems of a stricter non-compete agreement.
Confidentiality agreements are also a key part of any business’s strategy to protect its confidential information. Confidentiality agreements may be enforced against employees at any level of the company, and there are no time limits on the enforceability of a confidentiality agreement. A good confidentiality agreement will state that:
- The employee will have access to the employer’s confidential information;
- All such information is the property of the employer;
- This information will be used only for purposes of doing the work of the employer;
- This information may not be disclosed to anyone outside the company; and
- These restrictions never expire and apply even after the individual no longer works for the company.
A properly drafted confidentiality agreement can be enforced to prevent anyone—from a production worker to an executive— from disclosing the company’s valuable information.
Non-compete, non-solicitation and confidentiality agreements can be useful tools in protecting your assets. Your Warner Norcross attorney can help determine which agreements are appropriate for your business and help you craft agreements to meet your business needs.