It will likely come as no surprise, but it’s pretty safe to say that we live in a hyper-competitive business environment. With that reality in hand, it’s not hard to understand that employers will generally try to do all they can to protect their interests and business share from competitors. That said, it’s not always the devil you know that does you in. In addition to worrying about competitors, businesses also need to be concerned about their own employees engaging in harmful conduct that will hurt the business.
While this isn’t so much the case if you’re pushing Slushies at the local 7-Eleven, depending on your profession, many employers will try to protect their interests by having their employees sign restrictive agreements meant to maximize potential damage control. These types of agreements typically include provisions that address non-competition, non-solicitation, invention assignment and confidentiality.
What precisely are each of these covenants? Their names pretty much say it all, but here’s a quick synopsis. Non-competition agreements typically state that you will not start a competing business within a certain period of time and geographic region if you leave the business. Non-solicitation agreements prevent an employee from trying to “poach" clients or customers for his own benefit. Invention assignments basically give a company the rights over anything an employee has designed, created or invented while in the company’s employ (even sometimes items that are developed off-hours). And confidentiality agreements state that an employee may not share, reveal or use for their own benefit any of a company’s proprietary information either during or after his term of employment.
Restrictive covenants generally go a long way in protecting a business’s interests and laying the ground work for potential violations if they do occur, but these agreements may not always be dispositive. There are instances where certain of these agreements have been determined to be against New York’s public policy at least under some circumstances. That, however, is an issue I’ll take up in another article.
As a general rule, restrictive covenants will be upheld by our courts. Even so, the burden lies on the plaintiff to demonstrate that they should be upheld and that there has been a violation, but how? To start, one will look at whether the employee breached any of the fiduciary duties that it owed the company while employed by it. Generally speaking, employees owe their employers a duty of loyalty. If the employee is an executive, director or some other higher-up in a company’s hierarchy, he may also owe a duty of care.
As the name implies, a duty of loyalty generally prohibits employees from engaging in conduct that results in the employee taking a company’s opportunities for himself, competing with the company (directly or indirectly) or soliciting its employees. In short, employees are required to always act in the best interest of their company while employed by it, and they may not intentionally do anything to harm the company’s interests. Likewise, a duty of care requires that certain employees use their best business judgment in making decisions for the company. These individuals are required to make informed business decisions that include an analysis of all available information; decisions shouldn’t be willy-nilly or made at the ill-informed whim of a manager.
Depending on the job, duties of loyalty and care may exist outside the scope of a restrictive covenant. Regardless though of whether you’ve got a contractual breach claim or a common law claim against an employee, you need to know your rights if your business has potentially been harmed by the employees conduct, so always consult with counsel. While an attorney can assess your situation on its merits, if your case proceeds, it will likely end up in a jury’s lap to decide not only whether a particular duty was owed, but whether the duty was breached and what damages you’ve suffered.