CHAKRA - business news from Third Eye Management

Have you ever thought about how your business would be impacted if one or more of your key employees resigned and either formed a competing business or joined a competitor? How would it impact your business if the former employee were to solicit your customers or your employees? What if he took confidential information or he downloaded competitive information from your computer system? What if you found that the employees had been planning their move for months?

Two questions immediately come to mind: (1) What legal recourse do you have to minimize the impact on your business; and (2) What could you have done to better protect yourself? While you will never stop employees from seeking what they perceive to be greener pastures, there are some things that you can do to protect your business, including your relationships with your employees and your customers and you confidential information.

The Employee's Duty of Loyalty
Under the law of most states, employees owe a duty of loyalty to their employer during employment. Accordingly, prior to the end of their employment, employees cannot legally solicit clients or vendors for a rival business or accomplish similar acts in direct competition with the employer's business.
However, what most business owners don't realize is that employees breach no legal duty to their employer by making plans to enter a competing business while they are still employed. Absent enforceable restrictive covenants in an employment agreement, employees are entitled to make arrangements to compete, even before they end their employment, and, upon termination of their employment, immediately compete.

The Best Protection
The best way to protect your business against this type of conduct is to have key employees sign employment agreements containing restrictive covenants that protect vendors, customers, clients and competitive information of your business. Such agreements can contain covenants against competition, solicitation of clients, recruitment of employees, and use of confidential information.

Protections Available Without Restrictive Covenants
Though the use of an employment agreement containing restrictive covenants is the best way to protect the relationships and information of your business, there are laws that also provide some protection. Most states have a trade secrets statute that protects information that meets certain requirements.

Many business owners incorrectly believe that the trade secrets statutes protect most of the important information related to their business; however, the trade secrets statutes are often not sufficient protection for much of the commercially sensitive and proprietary information of your business. Further, while you may be able to obtain an injunction against the use of trade secrets by former employees, it is usually far more difficult to convince a court to grant an injunction against the employee working for a competitor or in a competitive business. Absent the use of non-disclosure agreements for employees who have access to competitively sensitive information, you may have a difficult time making out a meaningful claim under the trade secrets statutes.

Other weapons in the employer's arsenal are the state and federal statutes that prohibit computer-related misconduct. Many states have laws that make it a crime for any person to use a computer or computer network with knowledge that such use is without authority with the intention of taking the property of another, such as an employer. Most computer protection statutes also make it a crime for any person to use a computer or computer network with knowledge that such use is without authority and with the intention of deleting or in any way removing any computer program or data from a computer or computer network, obstructing, interrupting, or in any way interfering with the use of a computer program or data, or altering, damaging, or in any way causing the malfunction of a computer, computer network, or computer program.

Under these laws, employees can be held liable for downloading and taking information from your computer systems. In order to maximize the effect of these computer laws, strong computer-use policies should be implemented.

Responsibilities of Corporate Officers
Finally, in most states, corporate officers and directors have heightened responsibilities to the corporation. For example, if a corporate officer or director is presented with a business opportunity which: (1) the corporation is financially able to undertake; (2) is in line with the corporation's business; (3) is of practical advantage to the corporation; (4) is an opportunity in which the corporation has an interest or reasonable expectancy; and (5) is one where the self-interest of the officer or director by embracing the opportunity would be brought into conflict with the corporation's interest, then the law in most states will generally not permit that officer or director to personally seize the opportunity -- even in some instances if the officer is no longer employed by the corporation.

Conclusion
As with any potential problem, with proper planning and education you can save yourself significant loss of business and productive time in the future. If you wish to preserve the relationships your employees have developed on your time and using your resources and funds and/or the proprietary and confidential information of your business, employment agreements containing restrictive covenants are crucial. While alternative remedies are available, carefully crafted agreements and policies will maximize and expedite your ability to obtain legal recourse, including injunctive relief and to minimize the harm any employee or employees can do to your business upon their leaving.

Benjamin I. Fink is a shareholder in the Atlanta law firm Berman Fink Van Horn P.C. where he focuses his practice on non-compete and other competition-related disputes. This article is intended for general informational purposes only. The article is not intended to constitute, and does not constitute, legal advice.

Benjamin I. Fink

3423 Piedmont Road, N.E., Suite 200
Atlanta, Georgia 30305
(404) 261-7711
bfink@bfvlaw.com