So, you may ask, what does Meat Loaf – the performer, not the food – have to do with non-compete and trade secret law? A lot, it turns out. In considering his lyrics to “Two Out Of Three Ain’t Bad,” Meat Loaf captures the essence of most employment relationships at small to midsized businesses in America. Business lawyers are frequently called in to deal with key employees who unexpectedly tell their bosses “I want you; I need you; But there ain’t no way I’m ever gonna love you.” In other words, as long as employees get a paycheck, they will put up with a lot. However, the problem in the modern workplace is that fewer and fewer employees have a commitment or dedication to the success of the enterprise, and a minor perceived slight or loss to an employee’s prima donna status, will result in him or her looking for perceived greener pastures. Fewer employees love the business they work for, and have no compunction about taking steps that hurt the business when they are fired or resign. Nowhere is this seen more than in the recent spike in non-compete and trade secret litigation.
PROTECTING CONFIDENTIAL INFORMATION
With economic constraints placed on many businesses, business owners are requiring more effort from fewer trusted employees. Businesses do not typically appreciate the grave seriousness of permitting their key employees to unfettered access to sensitive, confidential information and trade secrets of the business. Therefore, they rarely take steps to protect confidential and proprietary information that gives the business a competitive advantage in the marketplace. If a senior employee chooses to leave, either on his or her own or is solicited by a competitor, a business may call upon its attorneys to take proactive measures to ensure that valuable and confidential information and trade secrets are not taken by the departing employee to his or her new place of employment. More significantly, businesses have built a relationship with their customers, providing differential pricing terms and negotiating delivery terms, etc. which these departing employees have full access to.
NON-COMPETE AGREEMENTS AND TRADE SECRET PROTECTIONS
So, how does a business protect the information and the contacts it has developed in the marketplace? This blog is the first in a series addressing non-compete agreements and trade secret protections a business may/should incorporate its daily operations. For example, in the upcoming blogs on non-competes, we will examine what provisions must be included in a covenant not to compete to make it enforceable under Texas law. Whether dealing with the financial markets in the Dallas business community or the oil and gas sector in Houston or San Antonio, businesses must take steps to protect the information that has given them an advantage over their competitors. As business lawyers, we are routinely called upon to structure non-competes for our clients. Sometimes, however, the basis of a non-compete is confidential information that the business promised to provide or has provided to its key employees. However, when we examine the protocols in place at the business, it soon becomes apparent that the steps taken by the company to protect its supposedly confidential information are grossly inadequate. If the basis of the non-compete is providing key employees confidential information, and the business has failed to satisfy basic thresholds to qualify and/or protect information as confidential, it follows that a basis for non-compete will also fail.
AUDIT OF OPERATIONAL PROTOCOLS
In litigating several non-compete cases throughout Texas, the business lawyers at the Vethan law firm employee a due diligence analysis for every business that seeks our assistance. There has to be an audit of the operational protocols at a business, specifically as to how a business protects its confidential information. In the case of trade secrets, that qualification is also determined as a matter of law. In other words, just because a business claims something is a trade secret, does not make it so. There must be some steps taken by the business to protect that information. If the information is not confidential and is not a trade secret, the business may be in the un-enviable position of losing its key employees to a competitor, or having a key employee become a competitor himself, with very little recourse left for the business.
An audit of a business’ confidential information and trade secrets by qualified business attorneys is critical. As the economy improves and businesses across the state take on more challenging projects, a business owner must anticipate the departure of one or more of his or her key employees. If that happens, it shouldn’t be Meat Loaf’s lyrics that control the departure; but Motley Crue, taking the position that “don’t go away mad; just go away.”
At the Vethan Law Firm, P.C., Your Problem is Our Business.