Intellectual Property: Why confidentiality agreements matter

It's Friday afternoon and you're sitting in your office checking your emails. Suddenly, a group of your employees - everyone in your computer assisted design department, in fact - comes in to announce they're quitting.

Under such circumstances, any employment lawyer likely would advise you to assume the worst - your employees are either going to start up their own competing business or go to work for a competitor.

What do you do now?

First, try to learn more about the type of work they will be performing at their new business or with their new employer.

Second, if your employees signed an agreement not to compete with a confidentiality clause and a non-solicitation clause, you should remind them of it and point out the agreement's obligations continue even after their resignation.

Such agreements are generally enforceable if they contain reasonable time and geographic restrictions - for example, the employee won't compete against you for a year and within a 250-mile radius of the area in which your business operates.

The agreement also will be enforced to the extent necessary to protect any unfair competition from the employees' access to trade secrets or other confidential information. That's why, when creating the agreement, you should be specific in terms of technology, sales information or other proprietary information that you trying to protect.

The non-solicitation clause also should prevent the departing employees, for a specified period of time, from soliciting or inducing other employees or your customers to leave with them for the new employer.

Another key point: Do not allow departing employees in sensitive positions to stay on the job after they have given notice. It is best to accept the resignations immediately and get them out the door.

This removes the employees' opportunity to gather or archive confidential information.

Of course, if they had been planning the move, they may have already taken such information. But technology has made it easier to locate any leaks.

Make it company policy to require passwords and other identification sign-ins to access confidential information. Have your IT department (a.) lock the departing employees out of their computer access, and (b.) investigate immediately to ascertain if you should be demanding the return of confidential or trade secret information, or if you need an injunction from a court to prevent the dissemination or use of that data.

Now, the bad news. Courts may be reluctant to enforce such agreements because they restrict an employee's right to work.

For example, one recent Iowa case held that a 7-year, 350-mile radius of Des Moines restriction was too broad, and limited it to 4 years and a smaller geographic restriction. Courts also will make sure there is an actual misappropriation of a trade secret.

In another recent Iowa case, the court dismissed the lawsuit when it found that the alleged trade secrets had been disclosed to the public through the employer's annual reports or other proper means, and was not confidential. So many lawyers would advise you not to spend the time and money going after your ex-employees except in cases where there is a clear violation of a reasonable agreement not to compete or where there is proof of disclosure of trade secrets.

Also, an employer should be careful in selectively enforcing agreements against departing employees. A court may find a company waived its right to enforce such agreements because of such selective enforcement.

So, make all similarly situated employees sign the agreement and hold all employees to the agreement if they leave.

In other words, do it right or don't do it at all.

Finally, before taking an ex-employee to court, an employer should also look at the collateral damage caused by such litigation - such as the effect of such litigation on the morale of current employees, loss of business reputation, the lost time and opportunity costs associated in litigating a trade secret action, and the possibility that secret information could be revealed in discovery.

What if your employees didn't sign agreements with noncompetition or confidentiality clauses? Can you still go after these ex-employees on some oral duty not to disclose trade secrets?

Good luck. Although certain high ranking employees owe a fiduciary duty of loyalty to the company, courts may be reluctant to enforce such a duty absent a written agreement.