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As recently reported by the Wall Street Journal, the number of departing employees being sued by their former employers for breach of their restrictive covenants (i.e., noncompete, nonsolicit, confidentiality clauses) has increased 61% over the past decade, to 760 cases last year.  (see http:online.wsj.com - "Litigation Over NonCompete Clauses Is Rising," August 15, 2013).

 

Some lament this development as having a chilling effect upon innovation, entrepreneurship, and startup industries.  However, if you are a business owner, who invests significant resources into your workforce, you know all too well the frustration and business loss when the employee that you entrusted with your confidential business information, that you spent considerable resources on to train, and that you involved with your most important and profitable customers, decides to leave for your competitor, thus allowing your competitor to quickly and inexpensively take all of these competitively sensitive business assets.  Indeed, there is a distinct difference between competition and "unfair" competition, and the litigation trends noted above serve notice that businesses are prepared to stop the latter.

 

For business owners, it is essential to evaluate what business assets you have to protect, i.e., confidential business information, client relationships, proprietary manufacturing process, etc., and tailor the restrictive covenant to protect the asset.  For example, what is the geographic reach of your business, how long does it take to develop client relationships, and/or how long is your confidential marketing strategy viable?  A noncompete clause that bore no relation to your responses to these inquiries would likely not be enforced by the courts, such as a national prohibition on competition when your company only does business in two to three states.

 

Additionally, you need to consider what type of restrictive covenant is appropriate to protect your business assets.  In certain instances, a confidentiality and non-solicit clause may be adequate.  In others, a broadly worded noncompete may be required.

 

Last, it is also critical to consider a graded approach to your business asset protection plan given that you may very well have employees that have greater access to information than others.  Thus, for your CEO, a restrictive covenant that contains a noncompete, nonsolicit and confidentiality clause is likely in order.  However, just a nonsolicit and confidentiality agreement may be right for your mid-level manager.

 

In sum, the more thought and planning you put into your business asset protection plan, the more likely it is that your covenant will be enforced when you need it to be.  Indeed, given the litigation statistics cited above, businesses are vigorously defending themselves against "unfair" competition.  However, as this post suggests, it is one thing to be aggressive and it is another to be smart, prepared and effectively aggressive.

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