Showing posts with label California non-compete. Show all posts
Showing posts with label California non-compete. Show all posts
Friday, April 12, 2019
Tuesday, April 9, 2019
Enforcing Non-solicitation Agreements
April 17, 2019 at 8 a.m. at Peets Coffee 1615 Broadway, Oakland, California.
Sunday, September 15, 2013
Employee Theft is Rampant
Employee theft has become a rampant problem. Several our of clients have had employees steal customer lists, designs, website content, and other intellectual property. Other clients have been embezzled. Thieving employees have become more sophisticated in looking for ways to access confidential information.
Once the theft has happened, it is almost impossible to undo the damage. I have seen cases of substantial embezzlement of money not investigated by the police. Intellectual property theft is never prosecuted. IP theft is also difficult to litigate. Trade secret theft is difficult to prove since proving something is a trade secret is difficult. Trademarks and copyrights must be registered before they are infringed to effectively bring suit. Non-disclosure agreements and confidentiality agreements are often not enforceable.
Business owners must be very proactive today. Some suggestions to business owners regarding their intellectual property:
1. Assume your workers (employees, consultants, contractors) are going to rip you off. Sooner or later, one of your workers is going to try to take confidential information or steal from you.
2. Have all persons who work for you sign carefully drafted, detailed non-disclosure agreements, consulting contracts and employment contracts. Do not make them over broad but tailor them to your business and IP that you have.
3. Make an assessment of your IP. What do information, content, formulas, customer lists, etc. do you have? Look at where it is stored and who has access to it. How is it controlled?
4. Make and implement and IP Protection Plan. Your plan should include:
a. Labeling trade secrets as such (e.g. putting a watermark labelled "Trade Secret of XYZ, Inc." on such information).
b. Revising NDA's and other contracts to specify information that is confidential and not to be disclosed. And, ensuring that such contracts are enforceable. If such a contract is too restrictive, a court will find it violates California's anti-noncompete laws.
c. IP security. Make sure that any sensitive information, designs, etc. are kept under lock and key (if tangible). If in digital form, ensure that it can only be accessed by persons given permission - and they must have a password and username.
d. Assign and change usernames and passwords. Assign usernames and passwords to workers for computer networks and email accounts. Do not allow them to choose them or the ability to change usernames or passwords. Change usernames and password frequently.
e. Strong computer use policy. Have a clearly stated computer policy that prohibits the use of computers and email accounts for personal use. There is no reason, in the age of smart phones, that employees will have any need to use work computers and email accounts for personal use. There is no reason for a work email account to contain personal contact information. Strictly prohibit workers from giving their usernames and passwords to anyone else, including a fellow worker.
5. Obtain IP registrations. If a business has a large amount of content, particularly on a website, it should obtain copyright registrations. Trademarks should be protected by trademark registrations. Inventions that can be protected by patents should be unless the cost is prohibitive or not cost effective.
The above steps do not take into account employee theft of tangible property or embezzlement of company money. To prevent theft of tangible property, place controls on the use and possession of such property and follow up. To prevent embezzlement, regularly review the books of the company and hire outside accountants to audit the financial records. Do not allow anyone to have unfettered access to financial records or bank accounts. Be familiar with the vendors of your company and what they charge.
The above steps and others will take time and money to implement. Consultation with IT professionals, accounts and attorneys is also necessary. However, it will be well worth it prevent the theft of valuable assets.
Wednesday, December 16, 2009
Non-Competition Clauses are Illegal
It is seems simple. You own a business that provides a service to customers. You have employees that provide that service. You don’t want your employees to steal your customers. So, you have your employees sign a non-competition agreement when they come to work for you. Your employees agree not to do any work for your customers for a year after they leave your employ.
Or, you are in a fiercely competitive industry. You don’t want your employees to take your business methods, customer lists and knowledge of your business practices and go to work with a competitor. So, you have your employees sign a non-competition agreement in which they agree not to work for your competitors for a year after they leave your employment - and, just to be reasonable, you limit this restriction just to the county in which you are located.
These agreements seem reasonable to you the business owner. You found the form for the agreement you have your employees sign on the Internet or on CD of business forms you bought at an office supply store. You signed such agreements yourself in the past when you worked for others. You know they are commonplace in the business world.
Those agreements are illegal in California. Years ago, the State of California adopted a very strong policy against non-competition agreements for individuals. The California Business and Professions Code states that agreements that restrict the ability of an individual earn a living by lawful means are void. That means that the agreements in the examples I wrote above were void as soon as the employees signed them.
California courts and Federal courts in California have strongly upheld this policy. Whether the employer is a sole proprietor or a Fortune 100 corporation, the courts have consistently refused uphold or enforce non-competition agreements. Even when the employer and the employee were out of state when the agreement was signed, and the agreement was legal in the state in which it was signed, the agreement could not be enforced once the employee entered California.
A non-compete agreement, or a clause in an employment agreement, could also be construed as unfair labor practice or an unfair business practice.
What can you do then about employees either taking customers away from you or using your business practices against you? In California, you can not restrict the ability of someone to make a living but you can protect your trade secrets.
Trade secrets include business practices and methods, formulas, manufacturing processes, business plans and strategies, computer programs and customer lists. It is illegal to use a business’ trade secrets that were improperly acquired. An employer can prevent an employee from using trade secrets after an employee stops working for the employer. In that context, the law recognizes that customer lists are trade secrets and that an employee can take steps to protect its customers and its other trade secrets.
California has made a narrow exception to its anti-non-competition policy for trade secrets. In order to protect its customer lists, an employer can require an employee to agree to not solicit the employer’s customers for a reasonable time after leaving the employment of the employer. (Reasonable time should be read to mean short such as a year or less).
An employer can have an employee sign a non-disclosure agreement (NDA). NDAs are agreements in which a person, either an individual or a company, agrees to not disclose confidential information, including trade secrets, of a business. NDAs are used in a variety of occasions, such as when one business in negotiating the purchase of another business.
I often recommend to my clients that they have their employees sign NDAs that list those areas of their business practices that are sensitive and are considered trade secrets.
Another exception to the anti-non-competition policy is the sale of a business ownership interest. If an individual is a principal in a business (e.g. an owner, partner, or major shareholder) and that individual sells his or her interest in the business, then, as a part of that sale, the selling individual can agree to not compete in the same industry for a reasonable time within a reasonable geographic distance. (For example, one year in the same county).
Other than the trade secret and the ownership sale exceptions, non-competition agreements are illegal in California. However, employers can take steps to protect their customer lists and business methods if they are wise about how they approach them.
Or, you are in a fiercely competitive industry. You don’t want your employees to take your business methods, customer lists and knowledge of your business practices and go to work with a competitor. So, you have your employees sign a non-competition agreement in which they agree not to work for your competitors for a year after they leave your employment - and, just to be reasonable, you limit this restriction just to the county in which you are located.
These agreements seem reasonable to you the business owner. You found the form for the agreement you have your employees sign on the Internet or on CD of business forms you bought at an office supply store. You signed such agreements yourself in the past when you worked for others. You know they are commonplace in the business world.
Those agreements are illegal in California. Years ago, the State of California adopted a very strong policy against non-competition agreements for individuals. The California Business and Professions Code states that agreements that restrict the ability of an individual earn a living by lawful means are void. That means that the agreements in the examples I wrote above were void as soon as the employees signed them.
California courts and Federal courts in California have strongly upheld this policy. Whether the employer is a sole proprietor or a Fortune 100 corporation, the courts have consistently refused uphold or enforce non-competition agreements. Even when the employer and the employee were out of state when the agreement was signed, and the agreement was legal in the state in which it was signed, the agreement could not be enforced once the employee entered California.
A non-compete agreement, or a clause in an employment agreement, could also be construed as unfair labor practice or an unfair business practice.
What can you do then about employees either taking customers away from you or using your business practices against you? In California, you can not restrict the ability of someone to make a living but you can protect your trade secrets.
Trade secrets include business practices and methods, formulas, manufacturing processes, business plans and strategies, computer programs and customer lists. It is illegal to use a business’ trade secrets that were improperly acquired. An employer can prevent an employee from using trade secrets after an employee stops working for the employer. In that context, the law recognizes that customer lists are trade secrets and that an employee can take steps to protect its customers and its other trade secrets.
California has made a narrow exception to its anti-non-competition policy for trade secrets. In order to protect its customer lists, an employer can require an employee to agree to not solicit the employer’s customers for a reasonable time after leaving the employment of the employer. (Reasonable time should be read to mean short such as a year or less).
An employer can have an employee sign a non-disclosure agreement (NDA). NDAs are agreements in which a person, either an individual or a company, agrees to not disclose confidential information, including trade secrets, of a business. NDAs are used in a variety of occasions, such as when one business in negotiating the purchase of another business.
I often recommend to my clients that they have their employees sign NDAs that list those areas of their business practices that are sensitive and are considered trade secrets.
Another exception to the anti-non-competition policy is the sale of a business ownership interest. If an individual is a principal in a business (e.g. an owner, partner, or major shareholder) and that individual sells his or her interest in the business, then, as a part of that sale, the selling individual can agree to not compete in the same industry for a reasonable time within a reasonable geographic distance. (For example, one year in the same county).
Other than the trade secret and the ownership sale exceptions, non-competition agreements are illegal in California. However, employers can take steps to protect their customer lists and business methods if they are wise about how they approach them.
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