Confidentiality Agreements for Competitive Risk Management

For businesses, welcoming a new team member—or saying farewell to one—often comes with both opportunities and challenges. It can be a critical moment where the right actions and the right agreements are both vital for competitive risk management. Here, we explore some key tactics for managing the entry and exit of employees.

Tips for Employee Onboarding and Offboarding

When onboarding a new employee, it is important to ensure that: (1) the employee is not bound by any non-compete restrictions arising out the prior employment; and (2) the employee has not retained any of the prior employer’s confidential information, whether intentionally or not. When an employee brings either restrictions or information to a new job, the employer may quickly find itself the subject of a cease-and-desist letter or, worse, a lawsuit.   

An Employee Acknowledgment Letter is a useful tool to minimize that possibility. Essentially, this letter is series of assurances by the employee involving any continuing obligations to a previous employer, especially around proprietary or confidential information. The letter is intended to accomplish three goals: (1) confirm what obligations the employee owes to the prior employer; (2) identify what information the employee may still possess—often unintentionally—in emails, on a personal laptop, or stored on USB devices; and (3) take the necessary steps to abide by any post-employment restrictions and to return or to destroy any of the prior employer’s confidential or proprietary information.

Speaking of the prior employer, a Notice Letter is a second tool used preemptively to avoid legal battles over allegations of misuse of confidential information. In this letter, you can give notice of your intent to hire an individual and invite the prior employer to raise any objections before any allegations of wrongful conduct or damages can exist. Similarly, you can identify the reasons you believe a prior employer’s restrictive covenants are unenforceable and, in doing so, seek to establish a basis to recover attorneys’ fees if the prior employer still attempts to enforce them, as outlined in Section 15.51 of the Texas Business and Commerce Code.

Section 15.51 of the Texas Business and Commerce Code requires that non-compete agreements be reasonable in scope, duration, and geographic area. Overreach here, and the prior employer could end up footing the bill for the legal costs incurred by the employee.

Best Practices for Employee Onboarding

Integrating a new employee into your organization is a delicate process that requires forethought, especially in this digital age where information flows freely across personal devices. It’s essential to set explicit guidelines from the start concerning the handling of company information on personal devices.

One best practice is to include a clause in the employment contract that grants the company the right to review and, if necessary, erase company-related data from an employee’s personal devices upon their departure. Doing so stands to protect sensitive information and mitigates the risk of data breaches, which can be particularly damaging in industries where proprietary information is a key competitive advantage.

Moreover, the ownership of contact information can often become a point of contention.
Therefore, it is advisable to clearly define the parameters of ownership within the employee’s contract. For example, who “owns” an employee’s contacts made during the course of employment. The answer can vary depending on the role of the employee and the nature of the company’s business. Transparency in this area not only avoids future legal disputes but also sets clear expectations for the employee’s conduct regarding company contacts.

Last, navigating the intricacies of personal device usage requires a balanced approach that respects the employee’s privacy while safeguarding the company’s assets. It is prudent to implement policies that govern the use of personal devices for work-related tasks, often referred to as BYOD (Bring Your Own Device) policies. These policies should cover the installation of security software, the scope of permissible work-related use, and protocols for reporting lost or stolen devices. By establishing these best practices, companies can foster a secure and respectful work environment that upholds both company and employee interests.

When an Employee Leaves Without a Non-Compete Agreement

The departure of an employee is a critical juncture for any business, layered with legal and emotional complexities. If you find yourself in a position where a departing employee never signed a non-compete agreement, it may feel like you’re navigating a minefield without a map. However, there are still measures you can take to protect your business. One strategic move is to establish post-employment obligations that fall outside the strictures of § 15.50. These might include stipulations for returning all company property upon departure, including intellectual and physical assets. It is important to define clearly what constitutes company property, from documents and files to hardware, ensuring the departing employee understands their responsibilities.

Another option is to incorporate a severance agreement that includes a non-compete obligation. This agreement can be mutually beneficial: the employee receives additional compensation or benefits upon leaving, and in return, they agree not to engage in competitive activities for a specified period. This approach not only helps to protect the business from potential competition but also provides a structured exit that can prevent future litigation. are enforceable and fair.

Whatever options you choose, legal counsel is advisable to ensure you understand the pros and cons of attempting to seek post-employment covenants at the time of the employee’s departure.

Conclusion

Navigating the legal landscape of employee transitions is all about clear agreements and clearer understandings between the employer and the employee. By being both proactive and intentional, you are not just complying with the law—you are actively protecting your business and setting the stage for a smooth transition, regardless of whether it’s a hello or a goodbye.