Experienced business leaders know how difficult and expensive it is to hire, train and retain good employees. It can take years of “on the job” training for an employee at any level to become master of their trade. Businesses invest thousands of hours and dollars in honing those skills and often do nothing to protect their most valuable asset, their people. You must take steps to protect your business up front; otherwise, former employees and contractors may be free to solicit your employees and customers or claim ownership or co-ownership in your intellectual property.
In over 30 years, I have received many calls from anxious clients regarding former employees. Do any of these statements sound familiar:
- “What can I do, my office manager just took a job with another company and he/she is calling on all of my best employees/customers to jump ship?”
- “What can I do, I assigned one of my employees to create a new marketing plan [product], he/she left and is claiming ownership.”
- “What can I do? I hired a company to do [blank] for me, and now they’re using that same concept for my competitors.”
The Good News
One agreement which is required to be signed by all employees and independent contractors can make a world of difference in the answers to these questions. For instance, a standardized confidentiality, non-piracy and non-compete agreement may handle many of these issues and allow an employer to protect its business when relationships change.
Confidentiality
The confidentiality aspect of the agreement describes the employee’s or contractor’s exposure to proprietary information of the company. This may be anything from trade secrets, customer lists, processes, financial history to pricing policies. The agreement basically puts the employee/contractor on notice that this information is considered proprietary to the company and that the employee/contractor is required to keep it confidential for the company – not only while engaged with the company – but for a period of time after they cease to be engaged and, possibly with regard to trade secrets, for periods as long as ten years.
Non-Compete/Non-Piracy
The non-compete aspect of these agreements (typically, if it’s an across-the-board agreement) is to ensure that there is no moonlighting without the consent of the employer. However, it is possible to ask, although questionably enforceable, that an employee or independent contractor not work for a competitor for a period of time after they work with your company. We find that most employees/contractors (who actually read the agreements) would object to a post-termination restriction on working with a competitor because of concerns about making a living and feeding their families. There are fewer objections to issues regarding (i) non-solicitation/piracy of employees and customers and (ii) non-piracy of intellectual property. These agreements often include a clear delineation that all work done on behalf of the company which may be copyrighted, patented or otherwise protected, is produced on behalf of the company as part of the employment/engagement, is work-for-hire and is actually owned by the company and not the individual (or contractor) who is performing the tasks.
Most employees and contractors find it fair that the work product they are producing and being compensated for should be owned by the person/company who’s paying them. We rarely hear objections regarding the prohibition on soliciting your workforce. Most people feel it is fair to prevent former employees from raiding their old company’s workers. You just don’t want them calling their old friends at work and saying, “I just went to work for Z Company and it is great over here! Why don’t you come join me?”
Bottom Line
Making this type of form standard for all of your employees and all of your contractors can go a long way towards avoiding the headaches that might occur after the relationship ends. Often the exit interview contains a reminder of the confidentiality and non-piracy obligations under the contract signed as a condition of employment. While it may be one more step in the hiring process, the cost of implementing a standard contract requirement like this is much cheaper than finding yourself losing customers, trained employees or valuable intellectual property.