Preventing Unfair Competition in the Absence of a Noncompete Agreement

08 October 2012 Labor & Employment Law Perspectives Blog

A key executive, top salesperson, or high-level engineer is joining a fierce competitor after being exposed to your company’s most confidential and proprietary information and trade secrets. The business leaders are very upset and demand action, but for one reason or another — company or industry culture, hiring needs, oversight, deception — there is no non-competition agreement with the departing employee. There are several steps you can consider taking, including :

  1. If it is not too late, conduct an exit interview with the departing employee to determine his or her intentions and what he or she will be doing at the new employer. Explain the continuing confidentiality obligations and attempt to obtain commitments.
  2. Analyze the departing employee’s emails, computer files, and hard copy documents to determine what the employee took and copied, transmitted to others, and/or destroyed. Preserve the employee’s computer, laptop, smartphone, and so forth. (There may be privacy concerns, so consult your attorney.)
  3. Interview other employees to figure out whether the former employee has solicited employees or clients, or done anything inappropriate, on the way out.
  4. Identify, with as much specificity as possible, the information that the employee possesses, in tangible form or in his or her head, that is truly confidential and proprietary and that can really harm your competitive business interests.
  5. Identify the similarities between the position held by the employee at your company and what he or she will be doing at the competitor.
  6. Determine the “end game,” taking into consideration the legal realities given the absence of a non-competition agreement. For example, at a minimum, you want the former employee to agree not to use or divulge confidential information, but you also may request non-solicitation of employees and customers, that the departing employee not perform certain job functions for the new employer, conduct a forensic computer analysis to confirm that the former employee no longer possesses confidential information, and other specially tailored actions.
  7. Act quickly, typically by sending an initial letter to the employee with a reminder and a list of demands. Also, consider obtaining the cooperation of and commitment from the new employer (taking into account tortious interference concerns).
  8. Especially if this matter is of paramount strategic importance, depending upon what you discover, consider filing a complaint and asking for a temporary restraining order or a preliminary injunction under a variety of theories, including inevitable disclosure, trade secret misappropriation, breach of duty of loyalty, unfair competition, and conversion. Be judicious in this assessment, as a losing employer under most trade secret statutes may have to pay the other side’s attorneys’ fees.

Of course, a non-competition agreement could make all of this easier. Also, these matters are complex, and there are some hidden minefields along the way so be sure to consult with an attorney. However, the good news is that if there is a real concern and strong business reasons to take action, you may be able to achieve relief even in the absence of a non-competition agreement.

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