As the workforce becomes more mobile and the pool of talented workers in certain industries shrinks, many states are placing new restrictions that make enforcement of noncompetition agreements more difficult.

Washington’s new law

Effective Jan. 1, 2020, noncompetition agreements in Washington are void and unenforceable against an employee unless the employer discloses the terms of the covenant in writing no later than the time of acceptance of the offer. In addition, the employee’s annualized earnings must exceed $100,000 per year, adjusted annually for inflation. If the employee’s employment is terminated by layoff, the covenant is void and unenforceable unless the employer pays compensation equivalent to the employee’s base salary (minus other earnings) for the time the employee is restricted. The restriction is also void and unenforceable if the employee is required to bring or defend a lawsuit or arbitration outside of the state of Washington.

Washington’s new law also provides that a noncompetition covenant is void and unenforceable against an independent contractor unless the contractor’s earnings from the party seeking enforcement exceed $250,000 per year.

Washington’s noncompetition restrictions may not exceed 18 months unless there is proof by clear and convincing evidence that a longer time is necessary to protect the business or its goodwill.

If a court or arbitrator determines that an agreement violates the new law, it will be costly: the greater of actual damages or a statutory penalty of $5,000, plus reasonable attorney fees, expenses and costs. It will also be costly if the court or arbitrator decides to reform, rewrite, modify or partially enforce a covenant. The party seeking enforcement will be assessed the same damages and fees.

It appears that broader restrictions from existing agreements will not be grandfathered in when the new law takes effect Jan. 1, 2020. The new law will apply to all legal proceedings commenced on or after Jan. 1, 2020. However, there is no provision to allow a lawsuit or arbitration to challenge a pre-2020 covenant that is not being enforced.

Oregon’s restrictions

In Oregon, a noncompetition agreement may be enforced as to new employees only if the prospective employee is notified at least two weeks before the first day of employment in a written offer. It also may be entered into upon a subsequent bona fide advancement, which requires a change in compensation, a change in title, and most importantly, a significant increase of responsibilities and duties.

Additionally, unless the employer pays the former employee additional compensation, the agreement may only be enforced against certain exempt employees (executive, administrative or professional employees) and the employee’s annual gross salary must exceed an amount measured by the four-person family as determined by the United States Census Bureau. That level fluctuates but generally has increased over the years. Currently, this salary requirement is approximately $90,000.

In Oregon, an employer must show that it has a protectable interest. This may be shown if the employee who is subject to the noncompetition restriction has access to trade secrets or access to competitively sensitive confidential business or professional information or where the employee presents a substantial risk of diverting some or all of the company’s business.

Finally, Oregon’s noncompetition restrictions may not exceed 18 months and must be reasonable as to scope.

In order to enforce noncompetition agreements entered into on or after Jan. 1, 2020, employers will need to send employees a copy of the agreement within 30 days after their departure.

Protection without agreements

In spite of the restrictions of Washington and Oregon laws, businesses still have tools to protect themselves against departing employees who do not respect the proprietary information of their employer. Oregon and Washington laws do this by a “carve out.” The restrictions on noncompetition agreements do not apply to:

• a restriction on departing employees forbidding them from soliciting other employees to leave the employer;
• a restriction on departing employees forbidding them from soliciting customers to cease or reduce their business with the employer;
• a confidentiality agreement;
• a covenant prohibiting use or disclosure of trade secrets or inventions; or
• enforcement of the common law duty of loyalty, laws preventing conflicts of interest and any corresponding policies.

In summary, many employers can protect themselves effectively without having to meet the statutory requirements or enforcement of a noncompetition agreement.

Richard Hunt is a partner at Barran Liebman LLP. He represents employers in employment law matters, including trade secrets, noncompetition agreements and departing employee disputes. Contact him at 503-276-2149 or rhunt@barran.com.

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Congress recently enacted the Defend Trade Secrets Act (DTSA), which creates a new federal civil cause of action for misappropriation of trade secrets. The DTSA provides for additional remedies, but also imposes certain compliance obligations upon companies seeking to recover exemplary damages or attorneys’ fees in federal trade secret litigation.

Federal definition of misappropriation of trade secrets

The term “trade secrets” covers all forms of confidential business or financial or engineering information, regardless of how that information is stored (physically, electronically, graphically, photographically, or in writing). Similar to the Uniform Trade Secrets Act (UTSA), which has been adopted in some form by most states, the owner of the trade secret must have taken reasonable measures to keep the information secret. Also, the information must derive independent economic value, actual or potential, from not being generally known and not being readily ascertainable through proper means.

The liability extends not only to persons misappropriating a trade secret but also to others who continue to use or disclose the secret information. The statute defines “improper means” to include theft, bribery, breach, or inducement of breach of a duty to maintain secrecy, or espionage through electronic or other means. However, “improper means” does not include reverse engineering, independent derivation or other lawful means of acquisition.

Remedies under federal statute

In addition to seeking damages and injunctive relief in the form of a temporary restraining order (TRO) or preliminary injunction, the new law also allows a company to seek an order requiring ex parte seizures of property so as to prevent the destruction of the value of the secret or destruction of evidence or the removal of the information from the country. However, before the court will issue an ex parte seizure, the owner of the trade secret applying for seizure must show “extraordinary circumstances,” including establishing that a TRO or other injunctive relief would be inadequate, that immediate and irreparable injury will occur if seizure is not ordered, and a showing that the person against whom seizure would be ordered or persons acting in concert with that person would destroy, move, hide or otherwise make inaccessible to the court the trade secrets at issue.

Entities seeking seizure must describe with reasonable particularity the matter to be seized and must provide a security amount to be determined by the court for the payment of damages for wrongful seizure. The moving party cannot participate in the seizure and the court must hold a hearing no later than the seventh day after issuance of the order. Abuse of the seizure procedures could result in the party who has been the subject of a wrongful or excessive seizure seeking to recover damages in the form of lost profits, lost good will, and potentially exemplary damages and attorney’s fees.

Whether to sue in federal or state court

Although federal courts have exclusive jurisdiction over actions brought under the DTSA, employers still have the option of filing in state court alleging a violation of the state UTSA.  Thus, a company pursuing a claim for misappropriation of trade secrets should consider all options, including the likelihood of whether the state or federal court will move expeditiously, whether there are advantages to being in a state or federal court with regard to the court’s expertise, the rules governing discovery and procedures, and how burdened the court is by a heavy backlog of cases.

Protection of whistleblowers

Under the DTSA an individual shall not be held criminally or civilly liable for disclosure of a trade secret that is made in confidence to a federal, state or local governmental agency or official. The new statute also has an anti-retaliation provision under which an individual who files a lawsuit for retaliation stemming from the employer’s suspected law violation may disclose the trade secret to his attorney and use the trade secret information in the court proceeding, provided that the document containing the trade secret is filed under seal.

Notice of immunity provision

The new statute also provides that employers must give notice of the immunity provisions in any contract or agreement governing the use of trade secrets. Failure to give this notice may preclude the employer from being awarded exemplary damages or attorney’s fees. The DTSA applies to not only employees but also contractors or consultants. Thus, companies should take immediate steps to include notice of whistleblower immunity in any confidentiality agreements with employees, contractors or consultants.

Effective date/statute of limitations

A civil action under the statute must be commenced no later than three years after the date the misappropriation is discovered. However, the DTSA does not apply retroactively and is limited to theft of trade secrets occurring on or after May 11, 2016.

No pre-emption

The DTSA does not pre-empt trade secret protection laws provided at federal, state or local levels. Examples of matters not pre-empted would include unauthorized access to a computer system in violation of the Federal Computer Fraud and Abuse Act and claims for violation of state UTSAs.

Criminal sanctions

The new law also provides for heightened criminal sanctions, including elevated criminal penalties for up to three times the value of the trade secret or $5 million, whichever is greater. The DTSA also adds economic espionage and theft of trade secrets to the Racketeer Influenced and Corrupt Organizations Act (RICO) list of racketeering activities.

Richard Hunt is a partner at Barran Liebman LLP. He represents employers in employment law matters, including trade secrets, noncompetition agreements and departing employee disputes. Contact him at 503-276-2149 or rhunt@barran.com.

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The decision of whether to sue an ex-employee who has taken or is using company information requires consideration of a number of factors.

Suing and seeking injunctive relief may be the only choice

If the departing employee was an important manager or sales representative, then the company may have no alternative than to sue and seek to enjoin the employee from working for a competitor or using confidential information. If there is strong evidence to support injunctive relief, then a complaint and motion for temporary restraining order (TRO) should be filed immediately. Before commencing litigation, the employer should secure and examine any electronic data that might be stored on company devices. If the potential harm is great, then the company should immediately retain a forensic expert to examine hard drives and other electronically stored information and email traffic. The employer should conduct the investigation without the employee’s knowledge so as to avoid efforts by the employee to hide or delete evidence of misconduct.

Alternatives to seeking a temporary restraining order

In circumstances where the company has a reasonable belief of misconduct but is unsure whether a court will issue a restraining order, it may want to move initially for expedited discovery and seek to obtain documents or take depositions. Depending upon what it has learned from the expedited discovery, the company can decide whether to pursue injunctive relief. Another alternative to seeking an immediate injunction to preclude the former employee from working for a competitor is seeking a court order enjoining the employee to maintain status quo of his or her electronic devices, to produce the devices for data imaging, and to prevent disclosure of the employer’s confidential information.

How will the employer be harmed?

An employer should make a cost-benefit analysis of whether the employee can cause any serious damage to the company. If the employee is an underperformer or if the individual has not been given confidential information, then a lawsuit may not be useful. On the other hand, if the former employee was a high achiever who had access to confidential business information and likely has been recruited by competitors, then if evidence exists of misappropriation of company information or solicitation of the employer’s clients or employees, litigation may be the only alternative.

Is sending a cease and desist letter enough?

Typically, letters written by the company to a former employee demanding that he or she cease and desist from violating restrictive covenants prohibiting use or misappropriation of confidential information or solicitation of clients or employees are ineffective to bring about a cessation of those activities. However, letters reminding employees of their obligations and restrictions can be effective to put the former employee and his or her new employer on notice. Even if the letters do not operate to bring an immediate halt to planned or actual misconduct, there is real value in reminding the individual of those restrictions if it later becomes necessary to sue. And, a letter to the company that has employed the individual may cause that company to have second thoughts about its hiring decision or may assign the individual different duties so as to minimize the risk.

What claims should be included in the lawsuit?

In addition to seeking injunctive relief, if an employee signed a confidentiality, nondisclosure, nonsolicitation or noncompetition agreement, then a complaint should include a breach of contract claim seeking damages. If the employee engaged in inappropriate activities while still employed, then the complaint should include a breach of loyalty claim. In circumstances where the individual has misappropriated trade secrets (possibly including customer or business information), then a statutory claim may be brought for misappropriation of trade secrets that may allow for attorney’s fees and double damages. Where a former employee is interfering with current and prospective contractual and economic relationships with clients and current employees, then a tortious interference claim should be brought. If an employee has taken or destroyed documents or electronic devices, then a conversion claim should be included. An employee who makes misrepresentations can be sued for fraud. Where there is unauthorized use of or tampering with or destruction of the company’s electronic devices, then a claim may be asserted under the federal Consumer Fraud and Abuse Act (CFAA).

Where to sue

If the employee signed an agreement, then it may require claims be brought in a court of a particular county or state, often where the company is headquartered. Based upon the facts, a company may be able to choose to file in federal court rather than state court. Also, the procedural rules of some courts may result in some delay before an injunction hearing is set or expedited discovery is allowed, so selection of the forum within which to sue is important.

Practical considerations

If there is a risk that employees may engage in similar misconduct, then it may be important to commence litigation and send a message to co-workers that the company will pursue its legal options. The nature and financial capability of the defense should also be considered. An individual who is going to work for a large, well-funded competitor may have an arrangement that the new employer will provide defense costs. Litigation costs cannot always be controlled. If a lawsuit is vigorously defended, then the suing employer may have to respond to discovery requests and motions, notwithstanding the merits of the case.

Richard Hunt is a partner at Barran Liebman LLP. He represents employers in employment law matters, including trade secrets, noncompetition agreements and departing employee disputes. Contact him at 503-276-2149 or rhunt@barran.com.

The post OP-ED: To sue or not to sue – a tough decision appeared first on Daily Journal of Commerce.

An Oregon Court of Appeals decision interpreting state noncompetition law raises more questions than it answers. The opinion in Bernard v. S.B. Inc. is just as important for employers hiring employees as it is for employees seeking employment or planning to leave employment and work for a competitor.

Although Oregon enforces noncompetition agreements under certain circumstances, it also requires employers to meet a number of requirements. An employer that fails to meet these requirements may find itself presented with a voidable noncompete agreement. But Bernard also appears to hold that an employee who relies upon the fact that such an agreement is voidable may be surprised to learn that the voidable agreement will nonetheless be enforced by the court.

In Bernard the employee was not given 14 days’ written notice in advance of hiring that a condition of her employment was that she would be bound by a noncompetition restriction. The 14-day notice is one of the conditions that Oregon law requires, and absent such notice the noncompetition agreement is voidable.

When the employee voluntarily left her employment and went to work for a competitor, the employer reminded the employee of her noncompete. The employee then filed a lawsuit raising various claims asserting that it was improper for the employer to threaten to enforce the noncompete for which notice had not properly been given. She relied upon ORS 653.295, which provides in part that a noncompetition agreement is voidable and may not be enforced by an Oregon court unless:

(a) The employer informs the employee in a written employment offer received by the employee at least two weeks before the start of the employee’s employment that a noncompetition agreement is a condition of employment;

(b) The employee meets the requirements for salaried exempt employees;

(c) The employer has a protectable interest because the employee has access to trade secrets or to competitively sensitive confidential business information.

The employee interpreted the statute to set up an absolute bar to the employer’s invocation (in or out of court) of any noncompetition agreement that was executed without the required two weeks’ notice. The employer argued that the agreement was “merely voidable, not void,” and that the language of the statute that the noncompetition agreement “may not be enforced” must be read in conjunction with the word “voidable.” The court concluded that under some circumstances, a voidable noncompete may be enforced.

How did the court get to this result? It observed that the pre-2007 statute used the term “void” until the statute was amended in 2007 to read “voidable.” It also noted that the amendments narrowed the class of employees who may be required to execute noncompetition agreements, limited the duration of such agreements to two years following termination, and required that prospective employees be given two weeks’ advance notice that a noncompetition agreement would be a condition of employment.

The court went on to state that although the change from “void” to “voidable” is not addressed in the legislative history, the legal consequences of the change evidenced a legislative intent (perhaps in exchange for restricting the permissible scope of noncompetition agreements in narrowing the class of eligible employees) to treat noncompetition agreements – even though they do not strictly comply with the new statutory requirements – as presumptively valid rather than void ab initio.

In short, the court concluded that the employee’s failure to show that she had taken steps to void the noncompetition agreement precluded her claims of interference. Because the agreement had not been voided at the time that the employer sought to invoke the noncompetition restriction, the agreement was therefore valid and remained in effect. As a result, the employer’s actions in contacting the employee and her new employer to remind them of the employee’s noncompete were not wrongful as a matter of law.

Missing from the opinion is a statement of when the employee must take steps to void the voidable noncompetition agreement and what those steps are. Although the case arose under quirky facts, the opinion appears to suggest that employers with voidable agreements may enforce them in litigation if the employer raises a defense in litigation before the employee takes “steps” to void the agreement (whatever those steps may ultimately be). Departing employees put themselves at risk unless they surface their intention to void the agreement or take steps to void the noncompete. This may be of concern to an employee who hopes to leave quietly, not attract attention, and join a competitor.

If an employee has not taken steps to “void” a voidable noncompete and the employer has done nothing to invoke the noncompete upon the employee’s departure, then under such a scenario the enforceability of the agreement could turn upon whether the employee is the first in time to void the agreement by putting the employer on written notice that the noncompete is void or by winning the “race to the courthouse” by filing a declaratory judgment action seeking a court order declaring the agreement to be void.

Alternatively, the employer might be successful in enforcing the voidable noncompete agreement by acting first to threaten enforcement of the noncompete or suing to enjoin violation before the employee has taken any action to void the noncompete.

It is possible that the May 2015 decision in Bernard v. S.B. Inc. may be appealed.

Richard Hunt is a partner at Barran Liebman LLP. He represents employers in employment law matters, including noncompetition litigation. Contact him at 503-276-2149 or rhunt@barran.com.

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Noncompetition agreements may be declared unenforceable or void depending upon the state law, the scope of the agreement and other factors. Therefore, it is important that a company require its employees to sign agreements containing other types of restrictive covenants limiting them from soliciting the company’s customers and employees, prohibiting acceptance of business from former clients and preventing improper use, disclosure or misappropriation of confidential information.

Covenants restricting competition

Noncompetition restrictions are not enforced in every jurisdiction. For example, California prohibits noncompetition agreements in almost all circumstances. Some other states impose requirements such as advance notification of noncompetition restrictions or a requirement of execution of the noncompetition restriction prior to or upon initial employment.

Noncompetition restrictions are also subject to attack if they are overly broad in scope or duration. On the other hand, noncompetition restrictions that are narrow and intended to prohibit the individual from performing a specific type of work or working in a specific industry are more likely to be enforced. Similarly, noncompetition restrictions that are shorter in duration or confined to a specific geographic area are more likely to be upheld.

Non-solicitation restrictions

An agreement should also contain a separate non-solicitation restriction that restricts an individual from soliciting both customers of the company and employees of the company. Although some courts treat non-solicitation restrictions the same as noncompetition restrictions, in most jurisdictions non-solicitation restrictions are viewed as less restrictive than noncompetition restrictions that prevent an individual from going to work for a competitor.

A non-solicitation restriction allows an individual to work for a competitor but restricts that person from soliciting the customers or employees of the company. Non-solicitation restrictions are more likely to be enforced if they are for a limited duration. Some states, such as Oregon, cap the duration of non-solicitation restrictions.

Clauses prohibiting acceptance of work

Many jurisdictions allow employees who have terminated their employment to publish an announcement informing the public of their new position with a different company and their new contact information at that new company. Former employees often contend that they did not solicit customers following separation from their former employer, asserting that the former customer approached them and sought to renew the relationship. A clause restricting a former worker from accepting the business from former customers may be effective and enforceable, even if the individual made no direct solicitation to that former client or customer.

Confidentiality restrictions

Even if noncompetition restrictions and non-solicitation restrictions and restrictions against accepting business are not enforced, the company should always have language in its agreement that protects against taking, disclosing or otherwise misappropriating confidential information.

The agreement should define the term “confidential information” and often will include information concerning customers, vendors, suppliers, financial data and business operations. Any definition of confidential information should include information that is stored on electronic devices.

Also, the provision should require the return of all confidential information upon termination, for whatever reason. Confidentiality restrictions should apply to conduct during the course of employment and for an indefinite duration after employment.

In jurisdictions where noncompetition or non-solicitation restrictions are unenforceable, if the court determines that confidential information has been used by a departing individual to unfairly compete or conduct customer solicitations of former customers, then courts (even in California) often rule that such conduct is improper.

Provisions permitting rewrites or revisions of overly broad covenants

An agreement containing restrictive covenants should include a “blue pencil” provision empowering the court to revise or rewrite or narrow an overly broad covenant so that it can be enforced as revised. However, the danger of having a covenant that is excessively overbroad is that a court may decide that it will not make any revisions and instead declare entire covenants as void and unenforceable.

Clause extending the restriction in the event of breach

An agreement containing restrictive covenants should also contain a clause that provides that in the event that a violation is established, the restrictive period should be extended so as to run from the date when the breach is identified.

Choice of law and venue provisions

The agreement should provide that it is governed by the law of a particular state, such as the law where the company is headquartered or the county and state in which the individual works. A choice of venue provision is recommended particularly for companies that want to have disputes heard in the state and county where the company is headquartered. In some instances courts will decline to enforce a choice of law or choice of forum provision if there is an overriding interest in the state in which the individual works or is employed.

In summary, even if some restrictive covenants are not enforced as written, it is strategically advantageous to have a variety of restrictions in an agreement so that if a court declines to enforce some restrictive covenants, it will have the option to enforce other provisions or modify provisions.

Richard Hunt is a partner at Barran Liebman LLP. He represents and advises clients concerning employment law issues, including noncompetition and trade secrets litigation, and employment-related litigation on behalf of employers. Contact him at 503-276-2149 or rhunt@barran.com.

The post OP-ED: Noncompetition, non-solicitation and confidential agreements appeared first on Daily Journal of Commerce.

Historically, many employers required executives, managers, sales personnel, technical staffers, and other important employees to execute a non-compete agreement restricting them from working for a competitor. However, other alternatives available to employers may accomplish similar objectives with less risk.

Non-competes often are unenforceable

A covenant to not compete is the most restrictive covenant, and increasingly subject to challenge or disfavor. Consequently, employers should consider whether they can achieve their goals by requiring employees to sign other forms of restrictive covenants that are less likely to be challenged.

The enforceability of non-competes varies by state. Some states, such as California, make non-competes void in almost all circumstances. Other states, such as Oregon, impose a number of conditions upon employers seeking to hold employees to non-compete agreements.

Oregon requires that the employer inform the employee in a written employment offer of the non-competition restriction at least two weeks before the employee’s first day of employment. The employer must also show that the employee is exempt from Oregon’s overtime laws, and earns an annual salary exceeding the median family income for a four-person family. Non-competes are unenforceable against employees who do not meet these criteria, even if they sign a non-compete agreement.

Increasingly, courts carefully scrutinize non-competes to determine whether they are necessary to protect the employer’s business, goodwill or information. Courts look at the nature of the work performed and whether the non-compete restricts the employee from performing identical work for others or whether it is a broad prohibition of performing any work for a competitor. Courts also examine the geographic scope and duration of the agreement. If it is determined that the non-compete is too broad, the court may refuse to enforce the agreement as written.

Improve chances of enforceability

Promotions: In some circumstances an employer may have a greater chance of successfully enforcing a non-compete in instances where an employee is promoted. In such cases, even though the employee was not notified in advance of hire of a non-compete restriction, the employer can show: 1, the individual is being promoted to a new managerial or executive position; 2, there is a significant increase in compensation; and 3, the promoted employee is assigned new duties and greater responsibilities.

Invite the court to narrow restrictions: An employer may be able to avoid the consequences of a court refusing to enforce a non‑compete as written by including language that invites the court to carve back the agreement so as to allow it to be enforced narrowly as to the nature of the work restricted, the geographic area subject to the restriction, or the length of the restriction. However, there is also a risk that the court will decline to modify the non-compete restriction and will declare it void without narrowing the language, in order to make it narrower in scope, geographic restriction, or length of restriction.

Consider alternative restrictive covenants

Employers may be able to accomplish many of the same goals as a non-compete by requiring an employee to agree to other restrictions, such as those against disclosure, use of confidential or trade secret information, or solicitation of customers or employees.

Confidentiality and nondisclosure agreements: Courts are more likely to enforce confidentiality restrictions (regardless of whether they are signed in advance of employment) because employers have protectable interests in avoiding misappropriation or disclosure of confidential or trade secret information.

In order to be a protectable trade secret, the company’s information must derive independent economic value from not being generally known to the public, and must be subject to efforts to maintain its secrecy. Confidentiality covenants help employers establish that the information provided to an employee is confidential. Employers may also take steps to limit disclosure by marking data as confidential or by adopting a policy that limits the access, use or disclosure of information stored on electronic storage devices. Employers able to prove that such information, whether technical data, business information, financial information, pricing information, customer information or other information are trade secrets, may be able to obtain attorney’s fees, double damages, and an injunction against disclosure.

Non-solicitation restrictions: In states such as Oregon, non-solicitation restrictions prohibiting an employee from soliciting customers or other employees are treated differently than non-competes. Thus, even in those circumstances in which a company seeks to bind its workers to a non-competition restriction, it should set out a separate provision restricting employees from soliciting the company’s customers on behalf of a competitor and restricting an individual from soliciting current employees to go work for a competitor. Thus, even if the non-compete is declared unenforceable, the non-solicitation restrictions may still be enforced.

However, not all states treat non-compete agreements and non-solicitation restrictions differently. For example, except in very narrow circumstances involving the misuse of confidential information, California does not make legal distinctions between non-compete and non-solicitation agreements.

Non-compete isn’t always the best option

In summary, obtaining non-competes may not always be the best option because those restrictions may be costly to draft, certain statutes impose many preconditions and hurdles to enforceability, and in the end, a court may rule that the non-compete is unenforceable.

In contrast, confidentiality and nondisclosure agreements are restrictions that typically may be imposed at the time of employment or during the course of employment, and are effective tools to protect companies’ business interests. Similarly, in many circumstances separate restrictions against soliciting customers and employees, both during the term of the agreement and following an employee’s separation from the company, may protect companies’ business interests.

Richard Hunt is a partner at Barran Liebman LLP. He advises and represents employers on a variety of matters, including non-competition and trade secret litigation. Contact him at 503-276-2149 or rhunt@barran.com.

The post OP-ED: Alternatives to non-compete agreements appeared first on Daily Journal of Commerce.

If there is reasonable suspicion that an employee may take confidential or trade secret information belonging to an employer at the time of separation – whether voluntary or involuntary – then the employer should take immediate action in order to protect its interests. Here is a checklist for an employer to follow:

1. Secure all executed agreements and important personnel records. The company should consider making a copy of all employees’ executed contracts and keeping those extra copies under lock and key.

2. If the employee was assigned a computer and had access to the company’s electronic storage devices and the information stored on those devices, then the employer or its information technology professional should take immediate action to preserve and investigate the employee’s use of the computer. This includes making a “ghost” of the hard drive or removing the computer from active use so it does not become compromised via a co-worker’s use after the employee’s departure. The IT person or forensic examiner should look for evidence of whether the employee has deleted important information belonging to the company, or has downloaded, emailed or otherwise transferred that information to an electronic device of the employee.

3. Upon the employee’s departure, the employer should gather from the employee all electronic devices, documents, business information and property belonging to the company.

4. If the employee signed a nondisclosure agreement or confidentiality agreement, then at the time of departure, the company management or human resources representative should remind the employee of applicable obligations and provide the employee with copies of the agreements as well as applicable policies (including those related to use of electronic devices).

5. If the employee leaves abruptly and the employer does not have an opportunity to conduct an exit interview for the purpose of gathering information and issuing a reminder of obligations, then the company should send a letter to the employee demanding the return of all documents (not the destruction of documents) and the return of all company property. In addition, the letter should put the employee on notice to preserve all data that has been taken so that it may be returned without modification or destruction.

6. If the employee is given the option to return to the workplace to pick up personal articles following termination, then a representative of the employer should accompany the employee to the individual’s desk and supervise the clean-out of information so that no electronic devices are accessed and no materials belonging to the company are taken. The company may want to take photographs so that it has a record of what existed in the office, in case documents and materials disappear later.

7. If the employee is suspected of contacting clients, co-workers or vendors following departure in violation of non-solicitation obligations, then the company should assemble a response team to communicate with those parties. The response team members should be given a script of what they can and cannot say and should be instructed to avoid making any disparaging remarks regarding the former employee. Oftentimes, statements can be announcements saying that the individual is no longer employed with the company and that the person’s duties have now been assigned to others, together with contact information. The employer should choose carefully whom it makes statements to because the former employee may have “friends” whose interests are more aligned with the former employee than the company.

8. Coworkers with information regarding inappropriate solicitations of the former employee or the missing information should be asked to provide signed written statements.

9. Immediate action should be taken to secure the confidentiality of company business information and trade secrets. This includes canceling computer access, disabling passwords, and, under some circumstances, changing locks.

10. If it becomes apparent that the employee is using company trade secrets (including customer information) to solicit sales on behalf of a competitor, then letters may be written to the former employee demanding that the person stop using or disclosing the information and cease and desist from soliciting customers. In some circumstances, the company may also want to notify the new employer of the agreements and policies that were binding upon the ex-employee. The new employer needs to be told that it too may be in violation of statutory obligations prohibiting the knowing receipt of misappropriated trade secrets and confidential information.

11. Similar letters should also be sent to the former employee and the new employer if the ex-employee is soliciting co-workers in violation of a non-solicitation covenant.

12. While demand letters to the former employee and the new employer serve to provide notice, they often are ineffective or ignored. Depending upon the scope of the activities and the harm being caused, the company should seriously consider filing an immediate lawsuit. Lawsuits brought against former employees and new companies knowingly accepting and using information that has been taken often include claims for breach of contract, misappropriation of trade secrets under the Uniform Trade Secrets Act, interference claims, conversion claims, and claims for injunctive relief.

13. Once a lawsuit commences, an employer may also want to seek a temporary restraining order. However, if the company has a good-faith belief that misconduct is occurring, but has a need to learn more facts prior to seeking injunctive relief, then it may want to file a motion for expedited discovery rather than an immediate temporary restraining order. Temporary restraining orders may be sought sparingly where there is strong evidence of irreparable harm. Such procedures are appropriate when the scope of misconduct is known and widespread.

14. If an employee’s misconduct is discovered before resignation is tendered, then the employee should be immediately suspended and/or terminated, and the employer may consider suing the employee for breach of contract and fiduciary duty, fraud and misappropriation of trade secrets.

Richard Hunt is a partner at Barran Liebman LLP. He regularly provides employer advice and solutions, and handles complex employment litigation in state and federal courts. Contact him at 503-228-0500 or rhunt@barran.com.

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Many companies are concerned how to protect their electronically stored information and prevent it from being accessed, altered or deleted by unauthorized individuals. In some cases, these “hackers” can be the company’s own employees: Either during employment or on their way out the door, they exceed their access to the company’s computers and wrongfully obtain company information. While companies have long been able to bring suit in state court for this type of wrongful conduct, a relatively new law allows employers to seek relief in federal court.

In 2008, Congress passed a federal statute that creates certain risks for employees and provides employers a right to file a lawsuit in circumstances in which employees have engaged in unauthorized use of a company’s computer system and the information stored on company computers. Although the legislation is commonly used by federal enforcement agencies to prevent fraud and related activity in connection with computers, it also creates a civil remedy for private businesses.

The Computer Fraud and Abuse Act (CFAA) prohibits unauthorized access of any protected computer that causes damage or loss. An employee risks violation of this federal statute when he or she accesses a protected computer without authorization or exceeds authorization granted, and knowingly and with intent to defraud obtains anything of value and causes the loss or damage in any one-year period aggregating at least $5,000 in value.

Employees risk being subjected to litigation under this federal statute if, among other things, they access without authorization their employer’s computer system and the information stored therein or exceed the authorized use or otherwise obtain unauthorized access by using another person’s password or engage in hacking in order to obtain information.

Employers can guard against unauthorized use of their company computer systems by drafting and having employees execute a computer operating policy or agreement. It should spell out the scope of the employee’s authorized access, the duration of use, and prohibit employees from sharing or borrowing passwords.

However, even in the absence of written agreement, employers can still seek relief under the federal statute if they have taken steps to limit or curtail an employee’s access to computers. For example, when an employer discharges an employee or receives notice that an employee is quitting, in many circumstances it should at this time cut off authorized access to the computer and make it known to the employee that the employee no longer has consent or authority to access the protected computer system or the information stored on the computer system. A departing employee who finds a way to avoid this directive and gain unauthorized access to the company’s computer system may be sued under the federal statute.

The federal statute does require that an individual who intentionally accesses a computer without authorization or exceeds authorized access must cause damage or loss in excess of $5,000. Under the CFAA a “loss” includes any reasonable cost to any victim, including the cost of response to an offense, assessment of damage, and restoration of the data, program, system or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.

Costs associated with investigating intrusions into a computer network and taking subsequent remedial measures are losses within the meaning of the statute. Thus, it is not necessary for data to be physically changed or erased in order for a company to show that it has suffered a loss or damages. It is sufficient to show that there has been an impairment to the integrity of the data, as when an intruder retrieves password information from a computer, and the rightful computer owner must take corrective measures to prevent the infiltration and gathering of any confidential information on the computer.

Of course, as mentioned previously, if an employee had authorized access to the computer and upon separation from the company retained trade secret information, or confidential information, then the company may have various claims under state law, including misappropriation of trade secrets under the Uniform Trade Secrets Act, breach of contract, breach of fiduciary duty, conversion and interference. But when an employee does not have authorized access, the CFAA permits a company to sue in federal court – where the company can seek not only damages, but injunctive relief as well.

There may be some strategic advantage to companies filing suit in federal court as opposed to state court. Attorneys retained to represent individual employees who reside in small towns or rural areas often prefer to be in the state circuit court where the individual resides.

In contrast, companies headquartered in big cities or in different states frequently want to have the option of commencing the litigation in federal court. Lawsuits brought under the CFAA give the federal court jurisdiction over all claims, provided one of the actions states a claim under the CFAA.

Therefore, it is important that employers keep this statute in mind when considering their options against an employee who has exceeded his or her authorized access and obtained company information.

Richard Hunt is an attorney with Barran Liebman LLP. He has more than 30 years of experience representing employers and executives in matters relating to non-competition and nonsolicitation agreements, confidentiality obligations and trade secrets, and litigation between employers and their former employees. Contact him at 503-276-2149 or rhunt@barran.com.

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Restrictive covenants ancillary to employment agreements are generally divided into three categories: covenants not to compete, covenants not to solicit and covenants prohibiting disclosure or use of confidential information.

Prior to 2008, non-solicitation agreements were construed by Oregon courts as non?competition agreements and therefore subject to the same restraints. In order for a non?competition/non?solicitation agreement signed before 2008 to be enforceable, it had to be signed upon an employee’s initial employment or upon an employee’s bona fide advancement.  As a consequence, many non?competition/non?solicitation agreements that were executed before the law change in 2008 are unenforceable agreements because they do not meet the statutory requirements.

The statute enacted in 2008 makes it even more difficult for employers to bind new employees to non?competition agreements because they are voidable unless they accompany a written offer of employment received by the employee at least two weeks before the first day of employment and the employee earns at least $67,000 annually.

The good news for employers is that non?solicitation agreements under the new statute are now treated differently from non?competition agreements. An employer may require its employees to sign agreements that they will not solicit customers or employees during the employee’s employment and for a two-year period following termination.

In addition, there is no waiting period or minimum salary requirement. New employees can be signed to non?solicitation agreements on the first day of employment, and existing employees can be required to sign non?solicitation agreements at any time during their employment. The new statute also reinforces the right to protect trade secrets and proprietary information.

Because many employers have concerns that their current employees will go to work for a competitor and begin soliciting their former customers or co-workers, requiring those employees to sign new non-solicitation/confidentiality agreements may provide a practical means of limiting such behavior.

The absence of a geographical limitation on the restraint against soliciting customers does not make the covenant void as a matter of law. However, if the employer’s interest in restricting customer solicitations is limited to a particular territory or category of customers or products, then the company should consider limiting the scope of the restriction to a particular geographic territory or category.

Non-competition agreements should be reserved for select hires when the company can afford to make an offer and wait the two-week statutory period before the first day of employment. Special rules apply to the calculation of the two-week period, so do not assume 14 days will be sufficient.

Employees who are subject to non-solicitation and confidentiality restrictions can reduce the risk of being sued by following these guidelines:

• Review any agreements to assure compliance with obligations, and provide copies of agreements to the new employer.
• Upon departure, leave behind all customer lists, employee lists, electronic devices (including flash/USB drives, phones, software, backup devices), and printed copies of all confidential information.
• Do not delete or copy any confidential information stored in print or electronic format.
• Consider making a checklist of all items returned and having superiors acknowledge receipt of those items.
• Continue to perform duties until date of departure and, while still employed, continue to be loyal to the present employer.
• When beginning to work for the new employer, do not divulge or use any confidential information of the former employer on behalf of the new employer, and do not use any company resources (phone, email, travel reimbursements, etc.) in order to make arrangements with the new employer.

Although individuals are not to use, disclose or otherwise misappropriate trade secret and proprietary information of the former employer, the new employer may have its own independently developed customer database to share. Also, public resources – such as websites, trade journals and the like – may be used.

The fact that during previous employment an individual developed skills, talents and knowledge does not by itself give the former employer a sufficient interest to restrain use of those basic skills, talents and abilities. Rather, it is the misappropriation, use or disclosure of confidential information or the systematic contact and solicitation of customers and/or employees that creates a significant exposure for a departing employee.

Also, an individual who accepts a new position may make a general announcement of departure that identifies the position with the new employer. However, issues regarding announcements can arise, particularly if communications go beyond a neutral announcement of new employment and position.

Employers should rewrite agreements and require most – or perhaps all – employees to sign non?solicitation/confidentiality agreements. Departing employees may minimize legal exposure by following their agreements, leaving behind all confidential and trade secret information (regardless of how it is stored), avoiding solicitation of co-workers altogether, and utilizing information and resources of the new employer to perform duties on behalf of the new employer.

Richard Hunt is an attorney with Barran Liebman LLP. He has more than 30 years of experience representing employers and executives in matters relating to non-competition and non?solicitation agreements, confidentiality obligations and trade secrets, as well as litigation between employers and their former employees. Contact him at 503-276-2149 or rhunt@barran.com.

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