Document Sample
2011-01-18_024646_non-compete Powered By Docstoc
					   Non-compete agreements are often prepared as part of a simple employment contract,

and can be included as a separate document that is reviewed, agreed-upon, and signed at

the beginning of a new job. Essentially, the non-compete agreement makes sure that once

an employee leaves a position that they will not do anything that directly competes with

the company he or she just left. The non-compete agreement is generally an effective

means to ensure that former employees do not make use of proprietary information to lure

away customers and thus damage their former employer.

   There are important requirements and regulations that we need to be aware of before

we present a non-complete agreement to this executive. First of all, most non-compete

agreements are prepared and presented at the beginning of new employment. As we have

already had a business relationship with this executive, we will likely not be able to have

him sign a new agreement. Furthermore, However, courts generally disapprove of non-

competition agreements as limitations on a former employee's right to earn a living.

Therefore, when made the subject of a legal dispute, non-competition agreements are

closely scrutinized in the court system.

   If we were to draft a non-disclosure agreement, there are five important elements that

we need to be sure to include:

      Definition of confidential information

      Exclusions from confidential information

      Obligations of receiving party

      Time periods, and

      Miscellaneous provisions (Nolo, 2011).
For instance, we need not disclose confidential information as part of our non-disclosure

agreemenet, but must clarify what type of information is to be kept private. An example of a

non-disclosure agreement may state, “Confidential information includes programming code,

financial information, related software materials and innovative processes.”

   Each non-compete agreement will differ depending on the actual position and may be

subject to local laws depending on the local jurisdiction. In order to be considered valid, a

non-competition agreement must:

      Be supported by consideration at the time it is signed;

      Protect a legitimate business interest of the employer; and

      Be reasonable in scope, geography, and time.

Interestingly, non-competition agreements must generally be supported by valid

consideration -- the employee must receive something of value in exchange for the promise

to refrain from competition. If an employee signs a non-competition agreement prior to

beginning employment, the employment itself will be sufficient consideration for the

promise not to compete. However, if an employee signs a non-competition agreement after

beginning employment, the mere promise of continued employment will not be considered

valid consideration for the promise. In this case, the employee must receive something else

of value in exchange for the promise. Such additional consideration may consist of a

promotion or other additional benefit that was not part of the original employment

agreement (Pollins, 2011). As previously mentioned, the courts look very closely at the

legality of non-compete agreements, especially when they have been negotiated after

employment has begun.
       It is also critical that we be able to prove that Sheer and Deer took reasonable steps

to maintain the privacy of its information. In other words, we cannot simply enforce a non-

compete agreement if we have previously shared our information with other people and

corporations freely. Moreover, we need to be able to show that the non-compete agreement

be reasonable in duration and scope. For example, we cannot seek to enforce an agreement

for any length of time where our product no longer holds value. When we consider scope,

we need to show that the agreement was only a means to protect Sheer and Deer from

legitimate competition from rival companies.

       Now, a non-disclosure agreement is not the only way to create a confidential

relationship. You can create a confidential relationship with an oral agreement or it can be

implied from the conduct of the parties. However, these relationships are much more

difficult to prove than a relationship based on a written agreement (Nolo, 2011).

       It is imperative that we have excellent legal representation if we were to pursue this

as a possibility. However, hiring an attorney may be prohibitively expensive. If we consider

the costs, we may wonder why the fees are so costly, here are some points that have been

shared with me:

      Raw emotion: Competitive disputes often result from a bad divorce among

       employee and employer. A pure economic analysis of whether litigation makes

       financial sense generally is not as critical of a factor as in other cases.

      Speed: By definition, unfair competition cases have to move fast, particularly from

       the plaintiff's perspective. A preliminary injunction trial can effectively decide many

       issues in the case, which sometimes results in efficiency. Often times, however, it

       results in multiple evidentiary hearings and several layers of fact discovery.
      E-Discovery: Electronic discovery and the exploding volume of information

       available to attorneys has made commercial litigation extraordinarily expensive,

       especially for individual defendants. Projects such as document and privilege review

       and metadata searches consume far more time than clients expect.

      Proof of Damages: Proving liability is not nearly as difficult in competition cases as

       establishing a legal basis for damages. Lost profits are especially hard to prove,

       particularly in cases of indirect competition. Even cases of trade secrets

       misappropriation are hard to quantify. Normally, expert witness testimony is

       required for complicated damages analysis, resulting in higher fees and discovery


      Number of Witnesses: In competition cases, there seem to be a lot of

       knowledgeable witnesses. Think about co-workers, customers, vendors, and the

       new employer. Numbers add up quickly, and interviewing or deposing those

       witnesses is very costly (Vanko, 2011).

Mr. Ken Vanko has elucidated these points; he is a member at Clingen Callow & McLean,

LLC in Wheaton, Illinois. For example, a recent Florida case, which dealt with little more

than a breach of a no-hire agreement and relatively uncomplicated trade secrets

misappropriation claim following a sale of business, resulted in a fee petition of

$448,860.55. We definitely want to avoid costs of that magnitude!

       Given these exhaustive details, we may wish to reconsider our decision to draft a

non-disclosure agreement for this executive. Although we ultimately do not want to lose

this top executive, we also do not wish to coerce or trick an employee in to signing an

agreement of this type. Furthermore, we do not want to pay for the extensive legal fees and
research that is part of this sort of document. Therefore, my suggestion is to avoid this path

in favor of a different, and less costly, path.


        Nolo (2011) Nondisclosure Agreements. http://www.nolo.com/legal-

encyclopedia/article-29630.html. Last accessed January 17, 2011.

        Pollins, S. (2011) Non-Competition Agreements: Overview.


loss/employment- employee-non-compete.html. Last accessed January 17, 2011.

        Vanko, K. (2011) Fee Petition in Restrictive Covenant Case Approaches $500,000

(Marlite, Inc. v. Eckenrod). http://www.non-competes.com/ Last accessed January 17,


Shared By: