Inside: When an employee leaves: Practical guidelines for enforcing non-competes

A five step plan to protecting your company's trade secrets

Employers who utilize non-compete clauses and other restrictive covenants will inevitably be faced with the departure of one or more employees subject to those restrictions. When such a departure occurs, an employer may face the very real threat that the departing employee will exploit the employer’s confidential information or client relationships for his or her own benefit or the benefit of a new employer. A few practical steps can be taken by the employer to increase the likelihood that departing employees will comply with their post-termination obligations.

First, the employer should determine how the circumstances of the employee’s departure are likely to impact the employee’s restrictive covenants. If an employee voluntarily leaves to pursue another opportunity, the employer should determine whether the employee’s new position or venture falls within the scope of the restrictive covenants. If the employee has been terminated, the employer should keep in mind that this may affect the enforceability of restrictive covenants in some jurisdictions. Courts in some jurisdictions have held that restrictive covenants may not be enforceable against employees who are terminated without cause or for poor performance. In addition, if an employee has been terminated without cause or is not seeking employment that the employer considers to be a serious competitive threat, the employer should consider whether enforcement of the restrictive covenants is necessary. Many restrictive covenants are drafted to give employers the option of releasing employees from the restrictions. Since non-compete agreements often require employers to continue paying a departing employee during the restriction period, foregoing enforcement may be desirable.  

Second, regardless of the circumstances of the employee’s departure, the employer should conduct an exit interview with the employee. During the interview, the company should remind the employee of his or her continuing obligations to the company and consider providing the employee with a written letter highlighting those obligations as well as a copy of the agreement containing the restrictions. If the employee indicates that he or she does not intend to abide by the restrictive covenants, it may be advisable to notify the new employer of the terms of the agreement. The new employer may be unaware of the restrictions and may be willing to work with the former employer to ensure that the restrictive covenants are not breached. To the extent the employer does not intend to hold the employee to the restrictive covenants, the employer should notify the employee of that decision during the exit interview or in accordance with any applicable notice provision in the contract.

Third, the employer should consult with its IT and human resources departments to determine what, if any, devices the employee has been provided by the company and seek their immediate return from the departing employee. Additionally, it has become increasingly common for companies to allow employees to utilize their own devices to access company emails and other information. The employer should take steps to determine what personal devices (such as a phone, tablet, laptop or home computer) have been used by the employee for business purposes and take steps to ensure that any business information stored on those devices has been transferred to the employer’s system and deleted from the employee’s devices and that access to any business emails or other information by the departing employee has been cut off.

Fourth, the employer should take steps to ensure that the employee has not taken or retained confidential information. In some situations, a simple conversation with the employee to ensure that they have not retained any confidential information may suffice. In circumstances involving more sensitive information or when an employee has had access to company trade secrets, it would be prudent for the employer to conduct a review of the employee’s emails or other correspondence to determine whether company information has been sent to a personal email or mailing address. In addition, many companies now have the ability to track and log materials that are printed or photocopied by employees. Reviewing such logs may reveal whether an employee has taken or retained the company’s information. Once the company has undertaken this review, it may be beneficial to obtain a certification from the employee stating that the employee has not retained any confidential information.

Fifth, many restrictive covenants are designed to give employers a window of opportunity to transition client relationships managed or maintained by a departing employee. Even when restrictive covenants are complied with by a departing employee, there is still some risk that clients will choose to follow the employee to his or her new venture. Thus, when a departing employee responsible for client relationships resigns, the company should immediately notify clients of the employee’s impending departure and begin to introduce and transition those clients to other employees. Employers should not be lax about this. Rebuilding the client relationship as quickly as possible can help avoid costly litigation with the departing employee and prevent the client from becoming embroiled in the dispute.

The goal of any employer when faced with the departure of an employee is to protect the company’s goodwill, confidential business information and client relationships that the departing employee could exploit for his or her own benefit or the benefit of a new employer. In many instances, by reminding employees of their contractual obligations, taking steps to ensure that confidential information has been returned and is no longer accessible, and immediately beginning to transition client relationships, the employer may be able to effectively protect its interests without resorting to litigation.

Contributing Author

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Judith A. Lockhart

Judith Lockhart is the managing partner at Carter Ledyard & Milburn LLP. She is the chair of the firm’s Employment Law Practice Group and a...

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Contributing Author

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Emily Milligan

Emily Milligan is counsel at Carter Ledyard & Milburn LLP in New York. She is a commercial litigator whose practice focuses on restrictive covenants and...

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