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HR Alert - Non-Competes are Un-enforceable in California Most non-competition agreements are unenforceable in California. The California Court of Appeals ruled agreements that restrict an employee's ability to pursue similar employment after leaving a job are prohibited, even if they are narrowly written and leave a substantial portion of the available employment market open to the employee. However, a non-competition agreement is enforceable if it clearly falls under one of the following exceptions: ·Trade secrets protections, which can legally restrict an employee's ability to use confidential information or company-defined trade secrets. ·Sale of a business, which can legally restrict a seller's ability to compete with the buyer in the geographic location where the seller had carried on his business. ·Dissolution of a partnership, which can legally define a geographic area within which one of the partners cannot conduct a similar business. What is a Trade Secret? Every business has information that it would rather keep confidential. A trade secret can be any useful information that is not generally known. Trade secrets encompass both technical information such as formulas, designs, tools, manufacturing processes, and computer source code as well as business secrets including customer lists, employee lists, financial and accounting data, product plans and marketing plans. Such “confidential” or “proprietary” information is usually essential to the success of the business. A trade secret is a confidential practice, method, process, design, or other information used by a company to compete with other businesses. Even failed research and development efforts are trade secrets. In either case, trade secrets cannot cover information that is generally known to professionals in the field or generalized know-how. If others had access to the same knowledge, a company’s ability to succeed, or even to survive, would be significantly impaired. Therefore, trade secrets should be carefully guarded. What Should You Do?
1. Have all employees, independent contractors and temporary personnel execute confidentiality agreements as a condition of new or continued employment. A confidentiality agreement should contain, among other terms, a definition of trade secrets, limitations of how employees can utilize trade secrets, and the types of monetary and injunctive relief that a company can recover if the employee breaches the agreement. 2. Conduct regular meetings with employees, independent contractors and temporary personnel to remind them about what information the company considers confidential and the reasons why it wants to protect it. 3. Identify any information that the company considers confidential as confidential and proprietary by either placing it in a separate file or stamping “confidential and proprietary” on it. 4. Limit access to confidential information to only those persons who absolutely must see it. A company can place the information in a separate locked file cabinet or require selected employees to use a password to gain access to it. 5. For new hires, the company should inquire whether that person’s previous employer required him or her to sign a confidentiality agreement. A company should follow this policy, because it promotes awareness by the new employee that his future employer respects the confidential and proprietary information of that person’s former employer. 6. Include confidentiality provisions in the employee handbook. 7. Require vendors, suppliers and potential customers to sign non-disclosure agreements about the confidential and proprietary information made available to them, and make the company’s employees aware of that policy. A non-disclosure agreement is similar to a confidentiality agreement in that both seek to protect trade secrets. (Non-disclosure agreements are typically signed by vendors, suppliers and potential customers whereas confidentiality agreements are signed by employees.) 8. Conduct exit interviews and require personnel who have terminated their relationship with the company to return all confidential information that had been in their possession, including any information that is on their office or home computer. HR NETwork, Inc. Human Resource Training Courses |
The opinions expressed
by Cynergy, its Executive Advisors, Affiliates and Associates are
intended to be general in nature, mere suggestions and should only
be relied upon after consulting an appropriate expert, such as an
attorney or accountant. |