Labor: 3 ways to avoid problems with ex-employees

Establish termination processes to protect trade secrets and avoid discrimination claims

Sometimes employers find that ex-employees are a bigger headache than any current employee ever was. There are a number of steps you can take to minimize the chances of an ex-employee causing problems for your company. Most of these steps require appropriate planning well before the individual becomes an ex-employee.

1. Protect your assets. Safeguard your company’s intellectual property, trade secrets, goodwill, reputation and customer relationships. This protection needs to start before you hire an employee.

  • If a non-compete agreement is appropriate for an employee in the position, make sure that you inform the applicant of that requirement when you make an offer of employment. At least one state requires a non-compete agreement (or anti-piracy agreement, which would prevent a former employee from recruiting away other employees) to accompany the employment offer for it to be enforceable. Make sure that your non-compete covenants are valid under governing law, paying close attention to the activity prohibited, the duration of the prohibition and the geographic scope of the prohibition. Decide whether you need a covenant limited only by customer relationships, a covenant limited by geographic area or both. Also, decide whether you need an anti-piracy agreement to protect your investment in your workforce.
  • Require each employee to sign a non-disclosure agreement that acknowledges the existence of both trade secrets and other confidential information and that prohibits the employee from disclosing or using such information other than in the service of the employer.
  • Where appropriate, require the employee to sign an intellectual property rights and assignment agreement. This will ensure that the rights to any intellectual property the employee creates, in whole or in part, will remain the property of the company.
  • Implement practices to protect trade secrets and confidential information, including password protecting sensitive documents and prohibiting employees from taking sensitive material out of the office.
  • Have a solid electronic communications policy that notifies employees that all information and data on company devices and company information systems, including emails and data cached on the hard drive, is the property of the company, that the company can monitor and review such information and data and that the employee has no expectation of privacy in the data. Have employees sign a consent form agreeing to the company’s monitoring and access. If your company allows employees to use personal devices for work, the employee should sign a consent authorizing the company to inspect the devices and retrieve any company data.
  • A social media policy that protects company trade secrets and prevents harassment is a good idea. However, a policy that generally prohibits negative comments about the employer will probably run afoul of guidance from the National Labor Relations Board because it will be seen to limit employee discussions of terms and conditions of employment.

2. Use a deliberative process for employment termination decisions. Termination decisions should not be taken lightly. On the other hand, you should not keep a problem employee around when it is apparent that the employee needs to go.

  • Provide regular training for supervisors who have to make or communicate termination decisions. Your managers should know when termination is appropriate, what considerations are allowed, what considerations are prohibited and what process  to follow when implementing the termination.
  • Make sure that the termination decision makes sense. While you can terminate an at-will employee for any reason or no reason, doing so could cause an employee, and perhaps a jury, to wonder if there really was an illegal reason for the termination.

3. Set and follow procedures for employment termination.

  • At least two company representatives should be present at an employee termination. You should explain the reasons for the decision and, if applicable, let the employee know that he will receive additional information about how to elect COBRA coverage in the mail.
  • Make sure that you are following your state’s laws concerning timing and delivery of final paychecks, and verify whether you are required to pay the employee for unused vacation time.
  • If the termination is for misconduct, a written explanation could help to challenge the ex-employee’s request for unemployment compensation.
  • If you decide to give an employee severance pay, make sure not to create a de facto severance policy by always paying every terminated employee a severance based on a formula. If you want to have such a policy, make it official and comply with Employee Retirement Income Security Act reporting requirements.
  • Ask the employee to sign a statement acknowledging that the employee has returned all company information and documents and has deleted all company data from personal devices.
  • A letter reminding the employee of post-termination obligations (regarding trade secrets and any covenants not to compete) may be appropriate. If you suspect that the employee may be taking trade secrets, consider having a computer forensic specialist make a copy of the employee’s hard drive or other devices to review for suspicious activity.
  • Many companies have a neutral reference policy (confirming only dates of employment and positions held). If your company allows more information during reference calls, ensure that you do not cross the line into defamation. A true reason for termination will normally be protected from defamation claims, but may still be subject to discrimination claims if you do not give similar references for similarly situated ex-employees.
  • If you need to stop your ex-employee from competing in violation of his or her agreement with you or from misappropriating your trade secrets, do not delay action. Any such delay could allow the ex-employee to disclose valuable trade secrets and could be seen as evidence that the interests you are trying to protect are not very important.

Contributing Author

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John Zaloom

John Zaloom is a member in Moore & Van Allen’s Employment & Labor group. Regional, national, and global clients in wide-ranging industries rely on Mr. Zaloom...

Additional Contributors: Karin McGinnis

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