Protect Your Business
There are three areas that are important for business to concentrate attention towards to protect their business. (1) Restrictive Convenants (non-compete and non-solicitation agreements) and Confidentiality/Non-Disclosure agreements; (2) Classifying an individual as an independent contractor or employee; and (3) adopting a Social Media policy for inclusion in your Employee Handbook.
Restrictive Covenants: Employers need to plan in advance to protect their business from a valued employee leaving and desiring to compete against their former employer. Typical restrictive convenants are non-compete and non-solicitation agreements. These types of restrictive covenants are generally enforceable if there is a legitimate business justification to do so and are narrowly tailored in terms of geography, duration and prohibited activities to protect that business interest. Protecting confidential information and goodwill arising out of client relationships are two bases to support such restrictive convenants. Under Iowa law, the Courts use a three-pronged test to determine the enforceability of such restrictive covenants.
Non-Compete– restricts former employees from competing against a former employer. One important factor is whether the employee had “close proximity” or “personal contact” with the former employer’s customers. A non-compete provision is more likely to be upheld when the employee is placed in a position of close customer relationship and has an opportunity to pirate customers from the former employer following termination of employment, provided the geographical and time restrictions are also narrowly tailored.
Non-Solicit– restricts former employees’ ability to solicit or hire any of the Employer’s current employees. Often viewed as less anti-competitive and more easily enforced by courts.
Confidentiality Agreements/Non-Disclosure Agreements: Employers need to take specific steps to protect their “trade secrets”- i.e.; customer lists, price lists, production methods, production designs, and the like- both inside and outside the Company in order to improve its chances that a Court will support the Employer. The key- treat your confidential information as a trade secret if you expect a Court to treat it as a trade secret. Companies can take the following steps to demonstrate that it consider its information valuable, proprietary and legally protectable:
External Protection- If a Company intends to disclose any confidential information outside the company, make sure the receiving party signs a Confidentiality Agreement (often called a Non-Disclosure Agreement or “NDA”). This applies even if a company is only discussing the possibility of entering into a business relationship with another company. In addition, when a company discloses information that is considers confidential, it should mark that information “Confidential” in bold font on each page. If confidential information is disclosed orally, the disclosing company should state it is confidential and confirm this in writing. Taking these steps will signal to a court that the disclosing company considers its information to be a trade secret deserving of legal protection.
Internal Protection- A company needs to protect the secrecy of its information internally as well if it expects a court to treat such information as a trade secret. Employees should sign confidentiality agreements requiring them to maintain the secrecy of any proprietary information during current employment and following termination from the company. Internal disclosure of trade secrets should also be limited to those employees who have a need to know.
Taking these reasonable steps will help protect your Company in the event another party uses such confidential information.
How should you further protect your business? Employment Classification- Independent Contractor vs. Employee and a Social Media Policy.