PROTECTING COMPANY RESOURCES: Non-competes and confidentiality agreements in employment

Kansas Missouri

PROTECTING COMPANY RESOURCES: Non-competes and confidentiality agreements in employment January 24, 2018 Association of Corporate Counsel Mid-America Chapter

Overview Drafting Noncompete Agreements Choice of Law & Forum Selection Consideration Reasonable Scope Trade Secrets Litigation Strategy Settlement Agreements

Source: Mother Jones, 2014

DRAFTING RESTRICTIVE COVENANT AGREEMENTS

Restrictive Covenants Non-Compete Agreements (NCA) Non-solicitation/anti-raiding agreements Non-disclosure/confidentiality agreements

Source: faircompetitionlaw.com, 2017

KS: A noncompetition covenant ancillary to an employment contract is valid and enforceable if the restraint on competition is reasonable under the circumstances and not adverse to the public welfare. Weber v. Tillman, 259 Kan. 457, 913 P.2d 84, 89 (Kan. 1996) MO: The term "non-compete agreement" refers to all restrictive covenants entered into between the employer and employees that restrict post-employment activities of the employees, including non-competition and non-solicitation clauses. Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012)

MO: Sec. 431.202, RSMo Anti-Raiding Employee Non-Solicitation Reasonable covenant prohibiting employee from soliciting, recruiting, hiring or otherwise interfering with the employment of one or more employees shall be enforceable if the employer is seeking to protect confidential or trade secret information or customer or supplier relationships, goodwill or loyalty Enforceable between employer and employee without protectable interests in customer relationships etc. if restriction lasts one year or less; except as applied to secretarial or clerical employees

When to Draft Agreement On Hiring On Change in Compensation On Promotion On Renewal or Other Renegotiation of Contract

Enforceability Multi-jurisdiction Employers Choice of Law Provision - Reasonable connection to the parties - Situs of employee? - Situs of employer? - Violate state public policy?

Forum Selection Clause Include forum selection clause Generally deemed enforceable unless fraud, duress

Reasonable Scope Geographic and Temporal Restrictions

Reasonable Scope Protection of legitimate business interests like: Trade secrets Customer contacts or relationships Specialized training Preservation of referral base Confidential business information Good will Reputation Competition by unfair means

Legitimate Business Interests It is well settled that only a legitimate business interest may be protected by a noncompetition covenant. If the sole purpose is to avoid ordinary competition, it is unreasonable and unenforceable. Allen, Gibbes & Houlik, LC v. Ristow, 32 Kan. App. 2d 1051 (Kan. App. 2004); Ballesteros v. Johnson, 812 S.W.2d 217 (E.D. Mo. 1991). The purpose of a non-compete agreement is "to keep the covenanting employee out of a situation in which he might be able to make use of contacts with customers to his former employer's disadvantage." Osage Glass, Inc. v. Donovan, 693 S.W.2d 71 (Mo. 1985)

Reasonable Scope Legitimate business interests are NOT: Ordinary competition Preclusion of employee using some general skill (Moore v. Eggers Consulting Co., 252 Neb. 396 (1997))

Also Not Customers that the employee brought to the employer without training or investment by the employer (See Arthur L. Gallager & Co. v. Anthony, 2016 U.S. Dist. LEXIS 116384 (N.D. Ohio 2016)

Consideration KS: Continued employment as sufficient consideration is a question of fact MO: Continued employment and access to employer s protectable information and relationships constitutes adequate consideration for a non-compete agreement executed after inception of employment. Jumbosack Corp. v. Buyck, 407 S.W.3d 51 (Mo. 2013)

Reasonable Scope

Reasonable Scope Assignability Best practice to address assignability in agreement Include consent to assignment as to successor in interest without notice to employee

Reasonable Scope Tolling Restriction period automatically extended for any period of time in which violation is occurring

Reasonable Scope Defining Terms, Avoiding Ambiguity What is termination or separation? Who is a customer, client, lead, referrer? What constitutes solicitation?

Divert or take away customers held ambiguous and undefined and therefore more than necessary to protect the employer s legitimate interests (Pathway Med. Techs. Inc. v. Nelson, 2011 U.S. Dist. LEXIS 113075 (Ariz. 2011) Undefined terms, including competitor, business opportunity, services, similar services, perform, and pursuing, that were capable of more than one meaning including a meaning that is functionally overbroad, rendered agreement unenforceable Lanmark Tech., Inc. v. Canales, 454 F.Supp.2d 524 (E.D. Va. 2006).

Reasonable Scope Blue Penciling Judicial reformation of agreement to render the agreement reasonable Check choice of law and forum state law Severability clause

TRADE SECRETS

Trade Secrets State statutes: Kansas Uniform Trade Secrets Act (KUTSA), K.S.A 60-3320 et seq. Missouri Uniform Trade Secrets Act (MUTSA), 417.450 et seq. Federal statute: Defend Trade Secrets Act (DTSA); 18 U.S.C. 1836 et seq.

DTSA Federal cause of action Uniform definitions of trade secret and misappropriation Exemplary damages on finding of willful and malicious conduct Whistleblower protection immunity

Trade Secrets Information subject to reasonable efforts to maintain as confidential Information derives independent economic value from not being generally known

Common Disputes and Scenarios Employee leaves to work for competitor Is new employer truly a competitor? Employee leaves to form own company Employee leaves but only prepares to compete

LITIGATION STRATEGY

Litigation Strategy Develop case theme and strategy early What remedy does the plaintiff want? What remedy is likely? Identify defendants/parties Former employee, accomplices? New employer Provide notice of potential suit

Litigation Strategy Marshal evidence and litigation holds Find the NCA or other agreement Identify witnesses to and evidence of unfair competition Clients? Meet with business partners

Define damages Litigation Strategy Options for pleading damages Locate damages witnesses Capture and calculate/methodology for damages

Litigation Strategy Injunctive Relief

SETTLEMENT

Settlement Agreements and Creative Solutions Settlement Agreement Modification of Restrictive Covenant Disclosure of Trade Secrets Disclosures of Customer Lists

Questions?

Lora M. Jennings Attorney at Law Practicing In: Employment Law Health Law Insurance Defense Business Litigation

Lora Jennings: lmjennings@martinpringle.com 913-491-5500 or 816-753-6006

Kansas Missouri