A few years ago, fast-food companies and others were the subject of consternation and criticism when it was learned that they were using non-compete agreements to keep minimum wage employees from moving on to other employers. As a result of these abuses, restrictive covenants have become increasingly subject to scrutiny by courts intent on ensuring that their terms are reasonably and not overly prohibitive. One area where courts have consistently upheld non-compete agreements is when it comes to protecting trade secrets.
Though there is a general consensus that employees should be able to move freely between employers, it is generally agreed that it makes sense for those in possession of particular trade secrets belonging to their employer to be held to a higher standard with regards to moving on to a competitor. The goal is not to restrain trade: rather it is to protect the interests of the original employer and prevent the departing employee from damaging their business.
The enforceability of a non-compete agreement is generally a question of whether it was appropriately structured, offering consideration in exchange for the employee’s agreement to adherence to its terms, as well as to the reasonableness of the restrictions that it imposes. But while most non-compete agreements indicate that they are meant to protect confidential business information, there is a significant difference between that type of procedural knowledge and a true trade secret. While non-disclosure agreements can specifically address these issues, a noncompetition covenant that is meant to protect legitimate business interests can apply as well.
Where an employee who has signed a non-compete agreement leaves a company in possession of confidential and proprietary information, the contract can serve as protection and serve as a strong argument in support of the non-compete agreement being enforced. This is especially true if it is discovered that the departing employee indicates an ability to access or leverage this information in furtherance of the new employer’s business.
Despite the fact that non-compete agreements have fallen out of favor, they continue to be useful and enforceable in situations where the previous employer has a protectable interest in the information that the departing employee possesses. If you are facing an employee leaving your organization in possession of valuable trade secrets or want to protect yourself against that scenario in the future, contact us today to learn how useful a non-compete agreement can be, and how it can be enforced.