In Weber Shandwick v. Hill+Knowlton Strategies, et al, a former employer sued its ex-employees and new employer over the alleged violation of certain agreements relating to confidential information and the non-solicitation of clients. The case involves various complex issues: Are covenants not to compete enforceable? Can confidential information revealed to an employee during his or her employment be protected? Do courts uphold agreements not to solicit clients of former employers. If so, under what circumstances?
Covenants not to compete are enforceable if supported by consideration and impose reasonable limitations as to duration, scope, and geographic area. To determine if limitations are reasonable, the courts weigh the employer's right to protect its business against the employee's right to earn a living. Courts will consider evidence as to the employee's area of responsibility, as well as the geographic area in which he or she worked. If the covenant is held to be overly broad, most courts will reform it to make it reasonable (rather than declare it void).
Employers can have staffers sign confidentiality agreements, but, as with covenants not to compete, they must be supported by consideration and must protect information that is truly confidential. In determining what is "confidential" and, thus, protected, courts consider whether the information is known publicly; the number of employees who have access to it; the measures taken by the employer to protect it; the amount of money spent by the employer in developing/acquiring the information; and the difficulty a competitor would have in developing/acquiring it.
Non-solicitation agreements prevent former employees from seeking business from the clients of a previous employer for a given time period. As with covenants not to compete, they must be supported by consideration and reasonable in scope.
The agreements referenced above are very similar conceptually to pre-nuptial agreements. Both attempt to prepare for what will happen in the event of a "nasty divorce." As such, they should not be entered into hastily or without the advice of counsel. In addition, employees who signed agreements of this nature should seek legal advice as to what they can or cannot legally do when considering whether to accept a job with a competing firm.
Hubert Crouch is a partner at Crouch & Ramey, a law firm in Dallas.