Category Archives: Post-Employment Restrictive Covenants

Restrictive Covenants Tied to Compensation, Quirky Question # 96

Quirky Question # 96:

Our company is considering requiring our existing and future employees to sign non-competition agreements.  To make the agreements more palatable to our employees, we are considering linking the obligations imposed on the employees to an obligation on the company to compensate the employees if they cannot find suitable alternative non-competitive employment.  We are planning to cap the company’s obligation at one year of the employee’s base pay.Our feeling is that if we want to waive the non-compete for certain employees, as well as our payment obligations, we’ll be able to do so.  Moreover, we are planning to insist that the employees provide us monthly written reports of their efforts to find other jobs, detailing precisely what was done in the preceding month to find employment.  To the extent the employees fail to submit such a report in a particular month, or submit a report that in our discretion is inadequate, the company will be relieved of its obligation to provide the compensation.  Frankly, we feel this will provide us sufficient flexibility to withhold payment.  Make sense? Answer→

Stealing Confidential Information, Quirky Question # 78

Quirky Question # 78:

I am the HR Director at our company.  I just learned that one of our most valuable employees has resigned and taken a position with a competitor.  I requested our IT Department to make an evaluation of his computer.  They reported to me that before he left, he emailed to himself and his new employer customer and rate information  We consider that information to be highly sensitive, potentially providing our ex-employee the chance to divert a significant portion of our business to his new employer.

Most of our employees have non-competition agreements but, as it turns out, the employee who just quit never signed one.  I also doubt that we could claim the data he took is trade secret.  Unfortunately, we have not taken reasonable steps to protect the confidentiality of this information.  Are we out of luck? Answer→

California Non-Competes, Quirky Question # 55

Quirky Question # 55:

We have a highly mobile workforce, and we are concerned about our former employees going to work for a competitor, stealing our customers, and raiding our employees.  We are a technology based company and have developed proprietary information that would give our competitors an edge if our former employees were to use or disclose it to them.  We are based in California and understand that it has a very narrow view of non-competition agreements.  It seems very unfair.  If we put provisions into our contracts to try to stop this from happening, what are the chances that the contract will be enforceable?

[Quirky Question # 55 is another one of our California Questions.  As such, I have requested one of my California colleagues to provide the analysis.  The analysis below was written by Karen Wentzel of our Palo Alto office.  As I’ve described previously, Karen is a Stanford Law School grad, who has been practicing employment law for more than 20 years.  Karen’s biography can be found at www.dorsey.com.  Her email address is:  wentzel.karen@dorsey.com.  If you would like to see other analyses provided by Karen, click on the “View by Topic” box to the left of this posting, and scroll down to “California Questions.”  Click on that category and other California questions will be displayed.

If you have any particularly unusual questions pertaining to California law, you can send them either to Karen or me.] Answer→

Usurpation of Corporate Opportunity, Quirky Question # 52

Quirky Question # 52:

I formerly was employed as an engineer of a high tech start-up company.  I worked for the company for several years in a non-management role.  The company struggled to complete its product (or even to get it to work properly).  Because of these ongoing problems, the company had continual difficulties raising money.  Nearly bankrupt, the company laid off the vast majority of its employees, including me.  Not long thereafter, it went out of business.

Along with a few friends, I then started my own business.  My business has nothing to do with that of the failed company where I used to work.  Happily, the company that my friends and I started has had considerable success.

Much to my surprise, I recently was contacted by the former CEO of the company that fired me.  He said that I “usurped” an idea that belonged to his failed firm and that he and others were considering a lawsuit against my partners and me.  This seems like a shake down.  Do I need to be concerned about this situation? Answer→

Restrictive Covenants; Interference with Contract: Quirky Question # 11

Quirky Question # 11:

Our firm uses non-competition agreements for a number of our key employees.  The non-competition agreement was drafted by our outside counsel who tells us that it is enforceable.  One of our managers who had signed such an agreement recently resigned.  We just learned that she will be starting employment at our primary competitor, in a role nearly identical to that which she performed for our company.  If I contact her new employer to inform it of our manager’s non-compete, and her new employer withdrew her job offer, could she sue us for interfering with her prospective employment relationship? Answer→