BEFORE YOU HIRE, BEWARE OF EXISTING NON-COMPETE AGREEMENTS

  In today’s business climate, it is common practice for companies to require employees to sign non-compete and non-disclosure agreements prior to their start date.  These agreements, also known as restrictive covenants, are favored by companies looking to protect their trade secrets, business methods, marketing and pricing strategies, new products in the pipeline and customers’ contact information.  Restrictive covenants protect companies by prohibiting employees from working for a competitor for a period of time after their employment relationship has terminated.
  What some employers fail to recognize is that they need to be cautious when hiring an employee that may be bound by an existing non-compete agreement or other restrictive covenants.  Although a new employer is not bound by agreements executed by a prior employer and the employee, in many instances, the new employer may be named as a co-defendant in litigation arising from an employee’s breach of these agreements.  The issues in these cases are demands for damages and an injunctive court order requiring the employee to abide by the terms of the non-compete and prohibiting the new employer from using such confidential information for its competitive advantage. 
  Just as employers are seeking to protect themselves and their trade secrets at the start of their employer-employee relationship, they too should protect themselves from unnecessary litigation.  One thing that employers should do at the outset is to ask the prospective employee if she or he is bound by any non-competes or other restrictive covenants and include language in the company’s employment agreements (and/or offer letters) requiring the employee to represent that he or she is not bound by any such agreements.  If these representations are untrue, it would be grounds for terminating the employee for cause.
  However, an employer should not immediately discredit a potential employee who may be bound by a restrictive covenant or non-compete.  The employer should ask for a copy of the relevant agreements and have them reviewed by an attorney to determine their enforceability and whether taking on that employee would be a breach of the restrictive covenants.  Non-competes and restrictive covenants that are poorly drafted or overly broad in terms of geographic scope or length of time may not be enforceable. 
  Even if an employer does not take these steps and is unaware that an employee may be bound by such agreements, the employee and new employer might be contacted by the former employer or their attorneys advising them of the existence of such agreements and a demand to cure such breach.  Under this scenario, the new employer should ask for a copy of the agreements from the former employer along with other pertinent details as to what information the former employer believes has been disclosed and have the matter reviewed by counsel to determine the viability of the former employer’s claims.
 
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For information on how best to evaluate and draft non-compete agreements and restrictive covenants, contact Mauricio Cuellar, Esq. at Lauletta Birnbaum LLC at 856-232-1600 or mcuellar@lauletta.com.