Employee's leave all the time – there is nothing wrong with an employee moving on. However, when your employee leaves, they take their knowledge of your business practices, information, and assets with them. This can pose a risk to your business and the assets you have worked so hard to build. Whether the former employee is starting their own business or working for a competitor, there are actions that you can take to protect yourself starting on that employee's first day with you.
Ohio law favors restrictive covenants; restrictive covenants include confidentiality agreements, non-compete clauses, and non-solicitation clauses. While you cannot prevent your former employee from working everywhere or for the rest of their life, you can ask employees to agree to some reasonable restrictions on how and where they can work after they leave your employ.
What Is a Restrictive Covenant?
So what are these "restrictive" covenants? Restrictive covenants can be incorporated into an employment agreement or stand on their own.
- Non-solicitation clauses: These clauses can cover two scenarios – protection against a former employee reaching out to your clients, vendors, prospective clients, etc. to entice them away from you, or a former employee trying to poach your current employees to come and join them on their new venture.
- Non-compete clauses: These clauses limit the types of employment that the former employee can seek. Limitations can include working for a competitor, working with your clients, or creating a competing business within a certain radius of your office.
- Confidentiality clauses: Confidentiality clauses protect your confidential information. These clauses allow you to define what you consider to be confidential and limit how that information can be used, both during and after employment.
What Is a "Reasonable" Restriction?
While there is no one size fits all covenant that will be found to be reasonable 100% of the time, there are several factors that courts will weigh when considering whether a clause will be enforceable. These factors include:
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- The scope of the restriction (e., how long the restriction applies and the geographic limitations);
- How much interaction the employee had with clients;
- If the employee had access to, or possessed, confidential information or trade secrets;
- If the covenant is attempting to eliminate unfair or ordinary competition;
- Where the skill, talent, and experience of the employee was developed;
- The benefit versus detriment to the employee and employer;
- If the covenant would prevent the employee's ability to support themselves; and
- If the employment is "incidental" to the main employment.
Enforceability of Restrictive Covenants
Basically, when determining if a restrictive covenant is enforceable, a court will evaluate whether the clause is no more restrictive than necessary to protect your business. As such, thought should be given to these clauses so that they are tailored to your business and protecting those assets unique to it. Some questions to ask yourself include:
- Where are your assets located? For example, if your client base is located within 15 miles of your office, a covenant that restricts employment throughout the entire continent is probably not reasonable.
- How often does the confidential information turn over? Will that employee's knowledge of your trade secrets matter in a year? How long do you really need to restrict the employee's employment options?
- How niche is your business? In some instances, the more niche, the stronger the argument that the former employee is violating a restrictive covenant.
- How are you protecting your confidential information? If everyone in the business can access your trade secrets, is that information really confidential? You should be able to articulate what information you believe to be confidential and how the information is restricted to only those who need to know.
- What role does each employee play? For example, the more interaction your employee has with clients, the greater the risk that the employee may reach out to the client if they leave.
With these questions in mind, it's important to take a few other precautions in the event you ever need to enforce a restrictive covenant.
- Create a written policy. Define your confidential information and develop a policy to keep that information confidential. You should have a company policy in place that states how you expect trade secrets and other confidential business information to be treated, and your employees should be acknowledging that they are aware of the policy and agree to it. This policy should include provisions for use of personal devices and work from home access (especially in the COVID-era).
- Limit access to confidential information. This was discussed above, but should be reiterated here. You should have layers of access to your company's confidential information. It is unlikely that everyone within your company needs access to all of the data.
- Prepare clear job descriptions. Develop a job description that explicitly states the employee's role relating to use and/or knowledge of trade secrets and other confidential information.
- Remind departing employees of the restrictive covenants. If your employee leaves, then ask them to review the restrictive covenants in their employment agreement and acknowledge that they know of and are aware of the consequences for violating the agreement.
- Ensure the departing employee has no continued access. Wipe personal devices of company data when an employee leaves – again, ask the employee to acknowledge that they do not have access to and are not in possession of any confidential information before they leave.
- Maintain an employee file. In the event you have to enforce these provisions, having all of the key contracts, acknowledgments, exit interview notes, etc. in one place will help in swiftly and efficiently filing for enforcement of a covenant.
As stated above, employees leave all the time. Be prepared for their departure so that you can rest assured that your company is protected when that time comes.
