Non-compete and non-disclosure agreements in business are nothing new. But for high tech employers they’re becoming a critical method of holding on to employees – and company secrets.
Agreements may come as a contract clause or as a separate pact. Either way the purpose is the same: keep the employee away from competitors.
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“I can’t think of a company in the industry that doesn’t have one,” said Laura Livingstone, regional recruiting director for CBSI, an Information Technology company with an office in Providence.
“They’d be foolish not to have one.”
Employers see them as insurance. They protect their investments of time and money spent on employee training and research and development from being used for a competitor’s benefit. The deal usually states a specific time period that an employee may not work for a competitor within a specific geographic area after he or she leaves the job.
“I can’t think of a company in the industry that doesn’t have one.”
Livingstone said that occasionally an employee will be unhappy about the policy. But she also noted that CBSI invests heavily in training employees. In recompense it asks that they stay for a year. This protects the company and its clients, who do not have to worry about CBSI consultants leaving in the middle of six-month project. It also protects against the poaching of employees, she said.
“It provides us with a more stable workforce,” Livingstone said.
Signed agreements, however, are not always enforceable. Several factors come into play, lawyers say. For one, the agreement must be reasonable in its restrictions on the time and geographic region in which the employee is prohibited from competing with the company. Agreements typically range from six months to five years. Other mitigating factors include whether the employee quit or was fired, and whether he or she received some kind of consideration in exchange for an agreement not to compete with the company.
“The general principal is (that) they must be reasonable,” said attorney John J. Pendergast III, head of the labor and employment division of the Providence firm of Hinckley, Allen & Snyder, “with respect to the geographic scope and the time frame, as well as reasonable with respect to the restrictions imposed.”
What is reasonable is decided by the court. Typically, when an employee under a non-compete agreement quits and joins a competitor, the employee’s former company will go to court seeking a temporary restraining order against the employee.
This suspends the employment until the company can seek a preliminary injunction, which prohibits the employment until a trial is scheduled — which could be years later. The preliminary injunction hearing, therefore, is critical.
“Temporary injunctions are the whole game,” said attorney Robert E. Savage, of the Warwick firm of Savage & Savage. “If you don’t get that, forget about it.”
With non-disclosure agreements — usually included with non-compete pacts — companies seek to protect customer lists, research and development, and trade secrets. But to enforce these contracts they must show that these interests are legitimate, and that they are not easily available in the public domain — the yellow pages, for example.
In most cases, companies that believe they have suffered irreparable harm because of a disclosure are more interested in halting the activity than seeking damages, said attorney Craig Scott, of the Providence firm of Duffy & Sweeney, who has represented parties on both sides of non-compete disputes.
Essentially the cat is out of the bag,” he said. “And once the cat is out it’s hard to put it back in.”
With the economy being strong and employees changing jobs often, the improper taking of information is becoming a serious issue, said attorney Paul Gupta, director of the technology law group at the law firm of Sullivan & Worcester in Boston.
A lot of times people have done some work, and they think they’ve erased the disk,” Gupta said. “But we have tools that can un-erase files.”
The theft of information is a $300 million industry, said Victor Pichette, president of New England Spy Products of Warwick, who specializes in helping companies screen prospective employees and safeguard themselves from hackers and information thieves.
All of these factors have lead companies to insist on non-compete and disclosure contracts. Perhaps the single biggest factor, however, is the change in the way employment is viewed, Pendergast noted.
think it is,” he said, when asked if the non-compete contract is becoming more commonplace, “probably influenced largely by the fact that employment (at a single company) has become less and less a lifetime proposition. We have the phenomenon of companies being sold and relocating. The whole stability of employment has changed greatly.”
