A company whose departing employee has insider knowledge of trade secrets may ask the employee to sign a restrictive covenant, also known as a non-compete agreement.
What comprises such an agreement and how do courts respond if a problem arises that jeopardizes the trade secrets of the company the employee is leaving?
About restrictive covenants
A restrictive covenant or non-compete agreement limits the actions of a departing employee for a certain period of time in terms of competing with the former employer. The point is to prevent the company from having to deal with a competitive disadvantage.
Protecting confidential information
This kind of agreement protects the company by preventing the former employee from disclosing not just trade secrets but also confidential information. A court will usually enforce this sort of protection if the former employee has signed a restrictive covenant. However, the employer must prove that the information under scrutiny, if not strictly classified as a trade secret, is proprietary in nature.
Determining whether to enforce
In general, the court will consider several factors in determining whether to enforce a restrictive covenant. These might include the following:
- Does the employer have a legitimate interest in ensuring protection from the competitive activity of the former employee?
- Is enforcement of the restriction harmful to the public interest?
- Was the employee given reasonable consideration for signing the restrictive covenant?
Limiting disclosure of information
Common law protects employers from trade secret misuse on the part of a former employee. However, the employer must take steps such as restricting access to confidential information and training employees in handling that information. Having employees sign restrictive covenants provides further protection if possible wrongful conduct becomes an issue.