Restrictive Covenants, Confidentiality Agreements, and Trade Secrets

Restrictive Covenants, Confidentiality Agreements, and Trade Secrets

Restrictive CovenantsRestrictive Covenants• Restrictive covenants are contractual

agreements that aim to protect employer interests by limiting the ability of former employees to do such things as:– going to work for competitors – disclosing trade secrets or other sensitive

information– soliciting clients or former coworkers to

do business with or join other firms – making disparaging comments about their

former employers • The increasing use of restrictive

covenants to constrain the activities of former employees raises important legal and public policy questions.

Noncompetition AgreementsNoncompetition Agreements

• Noncompetition agreements are designed to prohibit former employees from working for competitors.

• The extent to which such agreements are enforceable varies considerably from state to state.

• Courts recognize such agreements as restraints on trade and will enforce them only to the extent that the restraint is necessary to protect legitimate business interests.

• Rule: Employers should use noncompetition agreements only if important business interests are at stake, and should craft the agreements to be no broader than necessary to protect those important business interests.

• Covenants not to compete– Limited as to duration or geographic

area– Based on some good consideration– Reasonable and not interfere with

interests of the public

• Rule: Employers should use noncompetition agreements only if important business interests are at stake, and should craft the agreements to be no broader than necessary to protect those important business interests.

Georgia Restrictive Covenant LawGeorgia Restrictive Covenant Law

• Major changes effective 1/1/11.• Previously, Georgia was a "no-blue pencil"

state• New Act

– Modification of Overbroad Provisions– No Temporal Restriction for Non-disclosure

Provision– Broadening a Non-solicitation of Customers

Provision– Non-compete Agreements Apply to a More Defined

Group of Employees

Other ProvisionsOther Provisions• Nonsolicitation agreements prevent

former employees from soliciting the firm’s clients after the employee leaves.– Some courts give employers more

leeway in using these agreements because they impose a lesser restriction on the employee’s ability to earn a living.

• Trade secret refers to information that has actual or potential economic value because it is not generally known to others and the owner makes reasonable efforts to keep this information secret.– Courts have traditionally recognized

a duty of employees under common law not to divulge such information.

Trade SecretTrade Secret

• Form Of Information

• Owner Works To Keep Secret

• Economic Value Derived From Secrecy

• Theft = Misappropriation

x

Georgia Trade Secrets Act O.C.G.A. § § 10-1-760 through 10-1-767

Georgia Trade Secrets Act O.C.G.A. § § 10-1-760 through 10-1-767

• Theft of Trade Secrets– Any form of information– Owner works to keep secret– Economic value derived from

secrecy– Examples: customer lists,

marketing plans, research results, formulas & designs

• Uniform Trade Secrets Act

Camp Creek Hospitality v. Sheraton Franchise Corp.Camp Creek Hospitality v. Sheraton Franchise Corp.

• Hotel’s occupancy levels, average daily room rate, discounting policies, long-term contracts, & operating expenses.

Leo Publications, Inc. v. ReidLeo Publications, Inc. v. Reid

• A publication’s list of advertisers, which included the size & frequency of their advertisements.

Reasonable Efforts to Maintain Secrecy Reasonable Efforts to Maintain Secrecy

• Limit access to those who need to know• Keep sensitive information under lock and

key• Password protect electronic files regularly

remind employees that information is secret• Stamp information as “Secret” or

“Confidential.”• Prohibit or limit copying of confidential

information.

RemediesRemedies

• Injunction• Damages• Punitive damages & attorney’s

fees for ”willful and malicious” misappropriation.

Confidentiality AgreementsConfidentiality Agreements

• Confidential information (broader than trade secrets)– Employer’s property & peculiar to

employer’s property– Disclosure or use must cause injury– Information must possess an

element of secrecy peculiar to the employer

• Must be limited to reasonable time

Other Provisions Other Provisions

• Nondisparagement clauses prevent employer and employee from saying negative or critical things about one another

• Nondisparagement clauses are now commonly included in severance agreements.