Attracting and retaining employees is always a challenge. After you provide an employee with a good job, training and development, customer contacts, and access to trade secret and other confidential information, it is discouraging, to say the least, when the employee then uses all of that to help another business compete against you. Regardless of your industry, it is critical to implement certain strategies to help reduce turnover, protect intellectual property, and improve your company’s economic performance. While you may not always be able to prevent an employee from working for a competitor, you can take certain proactive measures to encourage loyalty and retention, and to minimize the risks of unfair competition. These same tips can also help minimize the potential need for aggressive litigation through trade secret and other unfair competition claims.
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1. Hire Effectively
Effective retention of employees begins with effective hiring. You should look at prospective hires very carefully to determine whether the candidate is the best choice, and whether the candidate has moved around with prior employers. Try to determine whether this person shares your company’s values, vision, and goals; is committed to helping to develop business; and seeks to provide quality services or goods for customers. You can often determine from effective interviewing and screening whether the individual shares the same commitment to your business that you have.
2. Create a Culture of Engagement
People are more likely to stay and continue to work for businesses that respect their contributions, pay them fairly, acknowledge their work, and welcome them as part of a team. Employees who are engaged in the business are more committed, productive, and positive. Added perks such as on-site daycare, gyms, coffee shops, and other fringe benefits often add value to creating best places to work. Obviously, salaries must be competitive to retain talent, so you should evaluate compensation annually, if possible. Consider adopting impact awards for good performance, bonuses for exceptional performance or results, and using technology to promote the hard work of your employees.
3. Adopt Economic Incentives for Retention
As the old expression goes, “Money talks.” Sometimes it takes economic incentives to encourage employees to remain employed. There are a few types of economic incentives that may be worth considering. First, consider awarding performance bonuses that are dependent on continued employment through a specified date. If the employee leaves before that fixed time, he would not be eligible for the bonus. Second, consider using a “pay back” or reimbursement agreement for company-paid benefits like college tuition reimbursement or moving expenses. In those policies, if the employee quits before a designated date, he or she would have to pay back amounts the company advanced for those benefits. Finally, deferred compensation arrangements and stock option plans may also be structured so that employees contribute money to a plan over time or are awarded stock options, with amounts vesting over time.
4. Use Contracts to Minimize Turnover and Protect Trade Secrets
While almost all states have laws that prevent employee theft of confidential information, it is critical that you have tight non-compete and confidentiality agreements for your most important salespeople, engineers, and executives. Non-compete agreements (where permitted by state law) can prevent employees from working for competitors for certain time periods, but can also be drafted more narrowly to prevent employees from calling on their former customers or from poaching employees. Confidentiality agreements can help ensure that employees do not divulge confidential information that is not available to the public. You must make sure that confidentiality policies are followed and that proprietary information is well guarded. Finally, although most employees are “at-will,” you may want to consider whether it makes sense for certain employees to enter into employment contracts for a specific term that include notice provisions and economic incentives for employees to remain loyal.
5. Conduct Exit Interviews and Enforce Rights
Invariably, employees will leave for different reasons. When employees resign, you should conduct an exit interview to understand why they are leaving and where they are going:
- Determine what the employee’s new responsibilities will be and how they relate to his or her old job.
- Provide the employee with copies of any agreements or policies regarding confidential information.
- Remind the employee of the duty under the law not to use or disclose any secrets.
- Identify, as precisely as possible, the specific information the company considers confidential.
- Have the employee provide all customer contact information and confirm that he or she has not retained any copies in any form.
- Ask the employee to confirm the return of all documents containing confidential information, including all computers, zip files, PDAs, cell phones, or other electronic devices belonging to the company.
- Take specific steps to minimize the risk of misappropriation by securing computers and hard drives, maintaining a trail of downloading activity by the employee, and do not delete the employee’s emails.
- When the employee is leaving to join a competitor, do not, if possible, let the employee continue working after giving a notice of resignation; allowing the employee to continue working in that situation is bad for morale and just asking for trouble.
- Do not hesitate to tell the new employer your expectations concerning confidentiality; sending a letter to the new employer that provides notice of the employee’s knowledge of trade secrets not only informs the new employer, but provides a basis for suing it if the employee discloses or uses trade secrets with its knowledge.
Taking reasonable measures to retain employees and protect intellectual property can minimize the risk of unfair competition. By the time the issue gets to a court, however, business has already been lost. Thus, when a company depends on trade secrets to maintain its competitive advantage, it would be better served by focusing its efforts on preventing the loss in the first place, even if that means implementing the greatest security measures that it can justify or afford.