IP Protection Tip #4: Use of Non-Solicitation Agreements (As well as Assignment of Work Provisions)

Posted on March 15, 2012

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Article Highlights:

  • You can have all of the right ingredients for business in place, but in my experience, you will get nowhere without employees.
  • In order to protect its intellectual property, the employer should enter into a written agreement with each employee establishing that the employer owns the intellectual property created or developed by the employee during the course and scope of employment.
  • Employers should have an attorney review its Non-Solicitation Agreements periodically to make sure they comply with applicable laws and regulations.
  • Before employees depart the company, employers should take preventative measures to keep the company’s confidential information from being used for the benefit of the former employee or a third party.
  • By using this limited protection as opposed to broader non-compete provisions, the chances of enforcement are greatly increased, an employee is able to maintain a living post employment, and the true goodwill of a company is protected.

You can have all of the right ingredients for business in place — good product/service with a good market, a good business plan with good financing, but in my experience, you will get nowhere without employees. As a consequence, much of the goodwill of the company leaves the office when the work day is done, and the employees go home for the night. How can you protect yourself if your employees decide to go to a competitor or walk across the street to start their own company?

Because slavery is illegal and non-competition agreements present their own unique challenges (wait for next week’s article), I often recommend first having an assignment of work and confidentiality provision for employees, and second, a non-solicitation agreement.

In order to protect its intellectual property, the employer may enter into a written agreement with each employee establishing that the employer owns the intellectual property created or developed by the employee during the course and scope of employment. Additionally, the employer may want to have confidentiality provisions or a separate NDA so that the employee is required to maintain secrecy over confidential information. These agreements are useful in a variety of employment contexts, however, they are essential in research and product development positions.

Certain common law protections allow an employer both to maintain a claim to ownership of intellectual property (‘work for hire’ doctrine) and to maintain confidentiality (fiduciary duty of employee), but these agreements, which for the most part are fairly standard, reiterate and clarify these provisions and are typically consistent with the expectations of the employee and employer.

Accordingly, best practices typically mandate that the employer and employee enter into this agreement.

However, even without these, certain employees are particularly valuable and subject to ‘poaching’ from a competitor. Another important way to protect one’s intellectual property is through a Non-Solicitation Agreement. In these agreements, the employee promises not to solicit the former employer’s customers or suppliers for a certain period of time after the termination of employment. This agreement can be utilized by employers to reduce the risks associated with departing employees who have had access to proprietary information such as trade secrets, customer lists, and intellectual property.

Employers should have an attorney review its Non-Solicitation Agreements to make sure they comply with applicable laws and regulations. Non-Solicitation Agreements are governed by Ala. Code §8-1-1. These agreements are void in Alabama unless they fall within the exceptions set forth in § 8-1-1(b) or (c) Subsection (b) provides that “one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city or part thereof so long as the … employer carries on a like business therein.” Ala. Code 1975, § 8-1-1(b). Additionally, a host of case law restricts, limits, and modifies what can and cannot be in these agreements.

Before employees depart the company, employers should take preventative measures to keep the company’s confidential information from being used for the benefit of the former employee or a third party. The employee should return any confidential information they possess to the former employer. In addition, the employer should disable the former employee’s access to e-mail, voicemail, or other technology related to the company. Suppliers, customers, and other employees should be notified of the employee’s discharge so they will be aware that the former employee no longer possesses the authority to act on behalf of the company.

Human resource managers often recommend that the departing employee also sign an acknowledgement that they agree to be bound by the non-solicitation provisions of their employment agreement and that they have returned all property as required by the company. It benefits the company to have something in writing should an issue arise with the former employee down the road.

Non-Solicitation Agreements tend to protect more precisely what needs to be protected. By using this limited protection as opposed to broader non-compete provisions, the chances of enforcement are greatly increased, an employee is able to maintain a living post employment, and the true goodwill of a company is protected.

Mike Goodrich
Goodrich Firm, LLC

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