This newsletter will provide an overview of the law of restrictive covenants and trade secrets.

In difficult economic times, companies necessarily place a premium on hiring and retaining talented employees. The end of an employment relationship presents critical challenges for an employer on many levels. In addition to losing valuable employees, an employer may also find himself facing the loss of its proprietary confidential information, research, technology, client lists and hard earned goodwill. The cessation of the employment relationship brings with it special considerations which the savvy employer will anticipate and be prepared to address.

RESTRICTIVE COVENANTS
The unique aspect of non-compete covenants is that they restrict activities of an employee after the employee stops working for the employer. Because non-compete covenants are post-employment restrictions on an employer’s ability to earn a living, they are viewed with disfavor and are narrowly construed. Generally, courts view covenants not-to-compete as enforceable only to the extent they are necessary to protect the employer’s interest in its goodwill, confidential information and customer relationships. Courts attempt to strike a balance between the employer’s interest in protecting confidential information and the employee’s interest in earning a living.

To be enforceable, covenants not-to-compete must be narrowly tailored as to its duration, geographic jurisdiction, and definition of prohibited activity. Recently, drafting considerations for such covenants have become more complicated as a result of the global economy. Before the internet and the digital economy, a non-compete of duration of one or even two years was generally considered conservative and reasonable. In this new economy, clauses which previously were viewed as valid may be deemed unenforceable. The market moves too quickly. Likewise, geographical restrictions, measured in counties within the state or miles from the old workplace, may have little meaning in an economy that is without defined borders. Instead, restrictions may be defined in geographical terms as to where the company’s products or services are sold. Accurately defining the activity which is prohibited is also crucial in non-compete agreements.

TRADE SECRETS
Trade secrets trigger different issues and challenges. Under Massachusetts law a trade secret is defined as “anything tangible or intangible, or electronically kept or stored, which constitutes, represents, evidences, or accords a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, inventory, or improvement.” A trade secret must be something that is concrete and identifiable. The company must do more than subjectively believe the information is confidential. It must take affirmative steps to disclose the confidentiality to the persons it then seeks to prevent from using the confidential information. It is also important to remember that what is being protected is the information itself. The fact that no list or document was taken does not prevent the former employee from being enjoined if the information which he gained through his employment and retained in his memory is confidential in nature. While an employee can be barred from using a trade secret even in the absence of an express contract, the existence of such a contract will aid the employer in showing that is has made all requisite efforts to preserve the confidentiality of its information.

The Uniform Trade Secrets Act is a model law drafted by the National Conference of Commissioners on uniform state laws to better define rights and remedies of common law trade secrets. It has been adopted in 46 states, the District of Columbia and the U.S. Virgin Islands. Massachusetts, New Jersey, New York and Texas have not adopted the UTSA.

We recommend that our clients conduct a trade secrets audit on a regular basis to identify company information that may be a protectable trade secret. The process is designed to clarify what information is currently subject to trade secret protection (as some previously protectable information may have become obsolete while other vital information has emerged), and what steps the employer can take to protect that valuable information.

We can help. Trade secrets protection and covenants not to compete are potent weapons in the fight to retain market share. You may have questions after reading this brief summary. We welcome your questions and observations.

Questions?
Contact info@foleylawpractice.com or call 508-548-4888