Whether as a self-proprietor or as an employee, you have probably spent a good portion of your adult life dedicating your time and energy to growing your business. You have made many sacrifices in order to focus on developing that one product or process that will provide a competitive advantage for years to come, or devoted countless hours to landing that key customer that will take your business to new heights. But now that you have developed the proprietary process or significant customer account, how do you safeguard them?
Unfortunately, for many, these concerns do not take center stage until after it is too late—usually when an ex-employee misappropriates the information or unfairly competes against the company. However, there are steps that you can take in an effort to protect and safeguard these valuable corporate assets: (1) create an employee handbook with adequate confidentiality requirements; and (2) utilize post-employment restrictions.
Employee Handbooks & Confidentiality Requirements
It is important to note that your company is never “too small” to have an employee handbook. An employee handbook serves a multitude of purposes from introducing new hires to your culture to communicating company expectations. Furthermore, depending on the number of employees working at your company, federal or state laws may require you to have certain written policies.
Employers have significant latitude when it comes to implementing rules to protect against misappropriation of confidential information or other forms of unfair competition by current employees. By including a confidentiality rule in your handbook, employees have clear notice of confidentiality rules and limitations. The confidentiality rule in the handbook, at a minimum, should indicate: that it applies during the course of an individual’s employment; give some description of the types of confidential information covered under the rule; and state the restriction on use or disclosure of confidential information.
In addition to a confidentiality rule, there are several other useful policies to consider to mitigate the risk of misappropriation of confidential information or other forms of unfair competition, including: a return of company property rule; a social media and computer use policy; or a moonlighting or outside employment policy. There are, however, limitations to such work rules (e.g., a rule that prohibits employees from discussing terms and conditions of employment, such as wages and hours, violates the National Labor Relations Act), so it is important to review your handbooks with legal counsel to ensure compliance with federal and state laws.
A common misconception is that post-employment restrictions (such as a post-employment non-competition, non-solicitation or confidentiality/non-disclosure agreements) are rarely enforceable in Wisconsin. Although post-employment restrictions are subject to strict requirements, pursuant to Wis. Stats. § 103.465, courts routinely enforce narrowly tailored restrictions intended to prevent unfair competition by ex-employees. The following are some of the basic requirements for a post-employment restriction:
The restriction must be necessary for the protection of the employer. This means that the employer must have an interest that justifies the restriction imposed on the activity of the individual. For instance, if a sales person is responsible for and is a main point of contact with your biggest customer, the company certainly has an interest justifying a non-solicitation restriction related to that customer.
The restriction must provide a reasonable time limit. Any restriction that does not provide an express time limit is overbroad, which includes confidentiality restrictions. Furthermore, do not include an unreasonably long time limit.
The restriction must provide a reasonable territorial limit. The restriction should limit the individual from performing competitive services in a specific area, for specific competitors or some other limitation that may substitute for a geographic area.
The restriction must not be harsh or oppressive as to the employee. This requirement is not always easy to anticipate when an employee signs the post-employment restriction since it may be years before the end of the individual’s employment and circumstances often change during that time span.
The restriction must not be contrary to public policy. Generally, public policy is expressed by statute, regulation or by the courts. For example, agreements that restrict individuals from hiring employees of the company are against public policy.
Experienced legal counsel can assist in assessing your competitive risks and drafting a handbook or post-employment restrictive agreement. However, it is important to be proactive and consult with your counsel before you become a victim of unfair competition. Don’t wait until it is too late!
More information on Confidentiality Policies and Post-Employment Restrictions may be obtained from the Employment Team at Conway, Olejniczak & Jerry.