(Editor’s note: Curtis Smolar is a partner at Ropers Majeski Kohn & Bentley. He submitted this column to VentureBeat.)
A reader asks: My business is in an industry where sales people and software engineers are often recruited by competitors. How can I protect my company from being raided?
Answer: Employers use what are called restrictive covenants to protect trade secrets and prevent employees from unfairly stealing clients and/or information. Courts heavily scrutinize these covenants so it is imperative to have a seasoned attorney assist you with writing one that will be enforceable under the laws of the state where your company is located. (Just missing a few words can create tremendous grief for an employer.)
There are a variety of these available, but let’s look at the most common:
Non-disclosure agreeements: Non-disclosure agreements (“NDAs”) are one of the most effective and commonly used solutions to this problem. An NDA protects information that is a trade secret – data that has economic value (actual or potential) due to its exclusivity and is something you’re making efforts to keep secret.
Taking trade secrets without the owner’s consent is called misappropriation and if an employee misappropriates a trade secret, a company has the right to recover:
- Actual damages it suffers from the theft
- Repayment of the money made by the employee (or his new employer) as a result of the trade secret theft
- Injunctions requiring the return of the stolen property
- Attorney’s fees
To ensure the full protection of an NDA, you’ll need to require the employee to sign a confidentiality agreement when they come on board that defines the scope of information your company is trying to protect. This can be anything from a company’s secret sauce to pricing, lists and business processes.
Additionally, the NDA should contain a proprietary inventions assignment agreement (PIAA), which ensures that all work products created by the employee belong to the company and not to the employee – and the employee has no right to take them when he or she leaves the company. This can include everything from software programs to customer lists to website designs to pricing.
Covenants not to compete – Better known as non-compete agreements, the enforceability of these varies dramatically from state to state. In the states in which they are enforceable, like New York or Massachusetts, they can be very powerful tools. In other states, like California, they are generally prohibited.
California specifically has a statute stating that restrictive covenants not to compete are presumed invalid unless specific circumstances apply. For example, if the owner of a company sells their business, a non-compete may be enforceable against him or her in California.
For the states where these are enforceable, there are still some restrictions based on the duration of the agreement, geographical location and the breadth of activity prohibited.
Additionally, in many cases it doesn’t matter where the agreement was entered into or what the laws are there. If the employee moves to another state, either during or after employment, things can become muddled. So, it’s best to use non-competes with great caution. They may not be as effective as you initially think.
Non-solicitation – There are basically two kinds of non-solicitation agreements – non solicitation of employees and non-solicitation of clients.
Non-solicitation of employees is generally enforceable in most states, but a non-solicitation of clients may be considered an unfair restraint on trade. The exception in those situations is if the non-solicitation agreement is necessary to protect trade secrets.
Non-solicitation agreements are generally less onerous then covenants not to compete and typically more enforceable.
Startup owners: Got a legal question about your business? Submit it in the comments below or email Curtis directly. It could end up in an upcoming “Ask the Attorney” column.
Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.
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"I've never made out with him," Lauren Leto told me last week, between puffs of a Parliament Light. The 24-year old brunette, rocking a little black dress and flat boots, was debunking my suspicions that she might be romancing her notoriously cute business partner, Patrick Moberg, the talented artist perhaps best known for making the website NewYorkGirlofMyDreams.com in 2008.
Leto and Moberg recently launched the well-funded start-up BNTER, a site that stores the best conversations between users and their friends. BNTER comes on the heels of Leto's big Internet hit, TextsFromLastNight.com, the website that earned her two book contracts, a TV deal, and, reportedly, lots of money. But back to girl talk: "It's the same with [Texts co-founder] Ben [Bator]," she explained. "I picked such attractive co-founders, people assume we must all be dating. But, no, no, no. We're co-employees! And the thing people don't understand is that when you're, like, writing checks with someone — when money is involved — you become so sexually unattractive to that person." She exhaled. "This is why I can never get married."
Leto was smoking outside an East Village apartment playing host to the Silicon Alley version of a singles mixer — a meet-up for users of HowAboutWe.com, the dating website Brian Schechter co-founded on Valentine's Day in 2010. Users suggest date ideas or contact people whose ideas they like. "How about we go to an underground supper club?" was among the site's most popular date ideas during its first year, so Andy and Ashley — a couple who met on How About We — decided to throw the soiree, and Apt. No. 4, a traveling group of foodie friends, worked the kitchen, supplying lobster bisque and teriyaki char and drinks. Leto was a featured single on How About We this month: She answered every question with a quote from the Kelis song "Bossy"; she said she was at the party to support Schechter and not necessarily to find a man.
Nick Gray, the quick-witted Williamsburg party boy, would have it otherwise, though. "Lauren and I haven't dated yet, but I'm trying," he told us. When Leto offered no reply, Gray joked, "Awkward ..."
How About We's Schechter, meanwhile, admitted that online dating might always carry a stigma: "People say [the stigma's] decreasing, and soon there won't be any," he told us. "But when you go onto an online dating site, in some way you're confessing, 'I don't have what I want,' which is not necessarily an attractive thing. People tend to find someone attractive who has what they want. So I wonder if it's actually a psychological or cultural or almost biological thing: 'I want the one who doesn't need.'" He added: "I do think it will become increasingly normal. It's efficient. And a site that's about having fun and not confessing, necessarily, that you don't have something you want, is more likely to attract people. You're just saying, 'I want to try new restaurants!' Etcetera." Schechter has a girlfriend who he didn't meet over the Internet, but he said he still gets several e-mails a day with the subject line "How about we ...?"
Gray is one fan of the site who hasn't had much success on it yet: "I think my date ideas are intimidating to some people," he told us. "I used to think that I was a real catch, and now I've only had three people who wanted to go on my dates. Some people write, 'How about we get high and eat pizza?' and they get, like, one hundred people interested. And I write, 'Let's go to Rio for New Year's Eve!' Or, 'Let's go to Greece and open a falafel stand!' And people are like, 'Eh. Weirdo.'"
Leto claims she doesn't send many late-night texts of her own anymore because she gets up at six every morning, "so nervous" that something might have happened overnight. Telling us she still "lives poorly," she admitted she recently got an apartment of her own in Brooklyn. "I bought furniture, and I'm an adult," she added. But of dating in New York, Leto lamented: "Everyone wants something from you."
What she wanted from me, at least half-seriously, was less attention. At one point, she pretended to have stolen my tape recorder so that I couldn't report on her any further. And when I asked too many questions, she said: "This is going to seem like navel-gazing for myself. No navel-gazing allowed!" But she's just so good at all this, I informed her, as at least half the men at the party tracked her across the room. On cue, with a seemingly legitimate confusion, she asked, "Good at what?"
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