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When you hear a trusted leader got a great new job, you go through the whole cycle of reactions, from “Oh no who’s going to do their work?!?” to, “Oh man, I’m so happy for them, I’ll miss them.” But what if you hear the leader is going to a competitor?
It’s imagining this scenario that leads many companies to consider a non-compete.
Some background
Non-competes are contractual agreements. They provide that after an employee leaves your company, they will not work on behalf of a competitor for a period of time (generally up to two years). These are typically used for, but are not limited to, executive level employees.
Over the past 10 years, hostility to non-competes has increased precipitously, and nearly half of the states in the United States impose serious restrictions on post-employment non-compete agreements. Some states — including California — ban post-employment non-competes with extremely narrow exceptions. The Federal government’s announcement in 2021 that it intended to restrict or eliminate noncompetes wasn’t a harbinger of future change — it was an indicator of a wave of change that had already crested.
Zooming in on California
Even Governor Newsom’s recent incremental extension of California’s long-standing restrictions on non-competes is just that — incremental. The most noteworthy feature is that the law proposes to allow employees who have non-competes they signed related to work performed in other states to move to California and begin competing immediately. (Given the serious population losses California has experienced in the past few years, maybe we’ve reached the “try anything” phase.)
While the trend is leaning strongly against non-competes, the measure has its supporters — entities like the Chamber of Commerce have advocated strongly to preserve the ability to use non-competes to protect sensitive information, and some large companies continue to require them for senior hires.
So what are the alternatives to non-competes?
But non-compete agreements aren’t the only way to protect competitively-sensitive materials in the event of executive departures. A company without a non-compete still has significant ability to prevent abuse of its confidential materials. Even in California.
With that in mind, here are five best practices to protect your company’s hard-won trade secrets without non-competes.
Limit sharing to the people who need to know
The fewer people who know a secret, the more likely it is to stay secret — that’s true of that awkward thing you did on spring break in college, and it’s also true for trade secrets.
Label confidential or trade secret information as “confidential”
It sounds basic, but this will help remind people which information must be treated with greater care. And don’t rely on a one-time instruction here: periodically audit your most sensitive matters — like your R&D roadmap or marketing strategy documentation — to confirm employees are consistently labeling documents and applying suitable electronic safeguards like limiting download, printing, or transfer of the file(s).
Use confidentiality agreements
With employees, these typically take the form of confidential information and intellectual property assignment agreements, and define both what the company requires its employees to protect and what the employee needs to do upon leaving the company (such as returning documents or computer equipment). For counterparties or other non-employees, it’s common to use non-disclosure agreements (NDAs) to protect the competitively-sensitive information a person or company will learn by being in business with you, like your pricing, discounts, R&D roadmap, or other matters.
Train your employees
It’s not enough to have an awesome confidentiality policy sitting in a dusty corner of your employee handbook (though you should have a policy). Employees should receive regular training that directly addresses the kinds of confidential information they’re likely to come across, as well as the expectations the company has for how those situations should be managed.
Be a great place to work
Employees who are happy to work at their company aren’t the ones plotting to copy trade secrets and sell them to competitors. Invest in your relationship with your employees, and in efforts to retain employees and help them grow — so they don’t see the best path to promotion as the one that leads through a competitor.
Paloma Ahmadi is a senior lawyer with expertise in employment law, litigation, global expansion and non-competition and trade secret matters, who has honed her razor-sharp negotiation skills by parenting her three small children.
This article represents her personal views, not those of her employer, isn’t legal advice, and isn’t a substitute for talking to counsel to figure out the best legal strategy for your company’s confidential information. Which you should do.
