1. Why Bother With a Non-Solicitation Agreement?
   1. Protect your confidential, proprietary and trade secret information from wrongful use or disclosure to anyone including competitors.
   2. Protect your investment in the company.
   3. Protect your investment in the employee.
   4. Set an example for other employees.
   5. Maintain corporate integrity.
2. Non-Compete/Non-Solicitation Agreements distinguished: “Non-Compete” Agreements prohibit competition with your company and must be reasonable in time (duration) and geographic scope. “Non-Solicitation” Agreements prohibit your employees (and former employees) from soliciting your customers (no geographic scope).
3. One of the best tools available to protect the legitimate business interests of your company.
4. Will not be enforced so as to prevent the employee from making a living.
5. Courts balance the interest of the employer protecting its confidential and proprietary information with the interest of the employee in making a living.
6. Carefully drafted, fair, Non-Solicitation Agreements are generally enforceable. (Caveat: Ability to enforce will vary from state to state). Like any contract, they require “consideration”; some form of value given in exchange for employee’s agreement, not to compete/solicit; employment/cash or both.
7. At the inception of employment, the consideration can be employment itself. In some states, like Minnesota, once employment has begun, a Non-Solicitation Agreement will be valid only if the employee is paid something extra that he or she would not have been entitled to receive, before signing the Agreement.
8. Courts generally do not like Non-Compete/Non-Solicitation Agreements because they are a “restraint of trade”. Attitudes of courts vary from neutral, to very negative, depending on state in which enforcement is sought.
9. Restrictions in Non-Solicitation and Non-Compete Agreements must have some reasonable relationship to the business interests to be protected.
10. It is generally easier to enforce a Non-Solicitation Agreement than a Non-Compete Agreement (avoids the geographic issue). (Employer’s strongest position to enforce either type of agreement occurs on purchase/acquisition of business). In either type of Agreement, you should:
    1. Define customers.
    2. Businesses with whom you have conducted services within the last 12-24 months.
    3. Prospects called on or solicited by your employee (former employee) in the last 12-24 months of employment.
    4. A non-solicitation clause prohibiting your former employee from hiring your key employees should also be included. Solicitation of your employees by a former employee may constitute breach of the Non-Solicitation Agreement, as well as constitute wrongful interference with contractual relationships.
    5. NOTE: Competitors attempting to hire away your key employees may be subject to wrongful interference with existing contract claims. This legal right of action varies from state to state.
11. Wrongful interference with prospective contracts may in some states give rise to a legal claim against an interfering employee or competitor.
12. The Agreement should provide prohibitions against the use or disclosure of confidential/ proprietary information. Careful definitions of confidential or proprietary information are needed. For example, consider the following:
    1. Operating policies and procedures.
    2. Computer data bases.
    3. Computer software.
    4. Computer software development and utilization.
    5. Computer source codes.
    6. Financial records.
    7. Financial and operating controls and procedures.
    8. Contracts and agreements of all kinds, including those with customers and vendors.
    9. Pricing, marketing, sales services, sales and customer lists.
    10. Identities of customers and customer contacts.
    11. Identities of customer prospects, special customer needs, customer contacts.
    12. Technical needs/requirements of customers and prospective customers.
    13. Trade secrets, correspondence.
    14. Accounts.
    15. Business policies.
    16. Purchasing information.
    17. Functions and records.
    18. Management strategies and tactics, data, processes and procedures.
    19. Litigation and other legal matters and information that may be patented, copyrighted, trademarked or otherwise constitute proprietary information.
    20. Confidential Information may also include any information which Employer obtains from another company and which Employer treats as proprietary or designates as Confidential Information, whether or not owned or developed by Employer.
    21. Confidential information may be in tangible written form, computer data bases, or it may be represented and communicated solely by oral expressions or business activities which are not reduced to written form; it may be protected by patents or copyrights.
        1. Everything is not confidential.
        2. One of the most litigated issues is “customer lists”
        3. Key question–Can customer names be obtained from public sources such as yellow pages, trade journals, Internet, or other “public” sources. If their names can be easily accessed, they are probably not “confidential information” or confidential customers of yours.
        4. Even “inside” information may not be confidential, since a shipper customer may be disclosing to each of its prospective customers that information.
13. Key question–What policies and procedures are in place to protect the confidential information? (If you cannot prove the information was treated as confidential, you are in trouble!)
    1. Training; written notices to employees; regularity.
    2. Stickers, stamps marked “confidential”.
    3. Access–personnel, plus physical access.
    4. Personnel on need-to-know basis (not everyone needs to know everything).
    5. Locked safes, locked boxes, locked files, locked desk drawers.
14. Employee manuals/handbook stating and identifying the company policy regarding confidentiality. This helps prove you treated information as confidential–an element of evidence/proof.
    1. Computer databases–access, access codes, tracking use, written programs and manuals, a copyright notice should be placed on software, screens, and any written material. File for copyright protection. It is inexpensive and a smart way to protect your computerized data.
    2. “For-hire letters” written or included in contracts for those who provide software services to your organization. This is a common source of serious litigation. If you are hiring outside software writing companies, or you have hired an MIS or software writer, have them sign “for hire” letters, to make sure that you own all rights to source code.
    3. Note, the violation, or unauthorized taking or use, disclosure of copyrighted (or trademarked) materials may constitute a violation of federal law, the Lanham Act, and may constitute violation of unfair competition, copyright and trademark laws. Those laws provide serious penalties including the recovery of attorney’s fees in the event you have to resort to litigation to protect your information.
15. Enforcement: Breach of contract–how do you enforce it?
    1. You must start a lawsuit with a request/motion to the Court to enjoin the prohibited activity (a TRO temporary restraining order). The TRO is a drastic remedy and not easy to get. Employers must prove (burden of proof):
       1. The nature of the relationship between the parties (appropriate circumstances, what is the employer’s investment in the employee? What does he or she know? What is it that the employer seeks to protect?
       2. What is the harm to the employer if the TRO is denied versus what harm does the employee get subjected to if the TRO is granted pending further action?
       3. Likelihood of success on the merits.
       4. Public interest.]
       5. The administrative burdens of enforcement.
    2. A court will consider all of these elements before it makes its final decision to either grant or deny the temporary restraining order. Essentially, the employer has the burden of proving all of these elements and make a persuasive showing that failure to issue the temporary restraining order may subject it to irreparable harm. The purpose of the temporary restraining order is to prevent the employee (former employee) from interfering with your business, by violating the terms of your non-solicitation agreement. If a temporary restraining order is granted, the employee or former employee who is violating the contract will be subjected to the Court Order prohibiting him or her from taking any further action which may harm your company until a further evidentiary hearing is held. At the evidentiary hearing (usually scheduled within 30-45 days of the issuance of a TRO), the parties present evidence to support their claims, with the employer seeking a permanent injunction, prohibiting the employee (former employee) from violating the terms of the non-solicitation agreement.
16. How do you prove these elements?
    1. You need reliable witnesses. Hearsay will not work!
    2. You will need affidavits, sworn statements from persons who have first-hand knowledge of the behavior which you claim violates your contract. Typically, your customers may be the first to tell you that a former employee is now soliciting them. This can be very touchy. Most customers do not want to get involved in your lawsuits. However, sometimes they will provide you with an affidavit that at least factually will corroborate your claim that a former employee is soliciting them. You will need to prove what was taken, that it was used or disclosed without your knowledge or consent, and that it was “confidential information” as defined in your non-solicitation agreement.
    3. If you can prove that any of the information was taken from your facilities in physical form, that will be even stronger evidence of the violation of the contract. For example, if someone has taken computer disks, tapes, printouts, internal pricing strategies in written form, down-loaded computer information, taken hardware, customer lists, phone numbers, private information, accounting information, etc., you may have a better chance of success. Note, you cannot stop them from using what is their heads.
    4. Direct evidence is better than circumstantial evidence.
    5. NOTE, if the employee has gone to work for a competitor, you may be able to take legal action against the competitor for wrongful interference of contracts. Generally, competitors do not want to get involved in a lawsuit protecting a new employee, particularly if the employee failed to disclose the existence of the non-solicitation contract. That could result in the employee’s immediate dismissal. Sometimes, however, competitors encourage such employees to “join the team against another company”. In that instance, the competitor may be a good target for a wrongful interference with contract claim.
    6. The purpose of the legal action is to prevent a former employee from soliciting your customers, or using or disclosing your confidential information. The likelihood of collecting damages is not very likely, unless copyrighted, patented or trademark information is taken.
17. Choice of Law Issues:
    1. Generally, we try to include the name of the home state base of operations as the controlling law state. However, if it is likely that you will be enforcing the contract in another state, it is very wise to make sure that your contract complies with the law of that state. Each state has its own peculiarities and quirks and thus it is essential that you have your attorney check the laws of the state in which you anticipate you may have to enforce the agreement. One size does not fit all.
18. Who Should Sign the Agreement:
    1. Key employees, managers, better psychological benefits.
    2. When: At inception of employment, or at a later date (better at inception).
    3. Managers: You must be consistent in its use or you may be faced with discrimination claims. If you want managers/supervisors to sign, make sure all of them sign.
    4. If you want to introduce a new contract now, what about your current employees? Generally, after the inception of employment, you will have to pay something extra, some additional consideration, in order to make the contract valid.
19. Trade secrets:
    1. Most states have adopted the Uniform Trade Secrets law. Under the Trade Secrets Act, you can obtain injunctive relief (a restraining order), damages and attorney’s fees. Damages, where the taking and misuse of the trade secret is particularly egregious may result in a recovery of double damages.
    2. The enforcement of the trade secrets statutes does not involve a balancing of the interests of the employee against the interest of the employer. If the misappropriation of the trade secret is proven, then the person and perhaps the corporation involved in taking it will be liable.
    3. Definition of trade secret: A trade secret means information, including a formula, pattern, compilation, program, device, method, technique or process that (1) derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In Minnesota, the statute adds the following paragraph: “The existence of a trade secret is not negated merely because an employee or other person has acquired the trade secret without express or specific notice that it is a trade secret if under all the circumstances the employee or other person knows or has reason to know that the owner intends or expects the secrecy of the type of information comprising the trade secret to be maintained.”

All Rights Reserved R.H. Usem 2001

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