My Former Employee Is Competing With Me, Now What?

Every business has something that provides it with a competitive advantage.  Often that something is confidential information, trade secrets, well-trained employees, or very loyal customers.  Businesses work diligently and for many years to develop its processes, formulae, and methods of conducting business.  They also spend a lot of time and energy to create and develop relationships with customers and clients, and to train employees to be successful in the business. 

Inevitably, an employee leaves to form or work with a competing business.  As part of the employee’s departure, (s)he informs customers of her decision to leave.  Perhaps the employee solicits your clients with whom you have entrusted to the employee, using the knowledge of the client’s preferences and contractual arrangement. 

What can a business do to protect itself when an employee leaves, taking or using trade secrets, or soliciting clients?  Can anything be done to stop unfair competition, particularly in light of Business & Professions Code § 16660 which encourages unfettered competition.  Can my former employee raid my business of my best employees?  What obligations does an employee have to its employer?  Should I have the employee sign an agreement not to compete, or to maintain confidentiality?  Does the employee have any duty of loyalty?  Can I sue my competitors?  When will a lawsuit protect me and my trade secrets? 

We invite business owners, managers, attorneys, and human resources professionals to attend, in person or via webinar, our monthly Legal Beagle Bagel Breakfast to learn more about what businesses can, and should, do to protect themselves against misappropriation of trade secrets, and against unfair competition.        

Thursday, September 28 2017 - 9:00 a.m. – 10:30 a.m.

7112 North Fresno Street, Suite 450; Fresno, California 93720

*This session will be available via webinar.

  

Cost: $25.00 per person (FREE for HR Business Partners); an additional cost of $10.00 per line for participating via webinar. The registration deadline for the webinar is Wednesday September 27, 2017. Fishman, Larsen & Callister is an HRCI Approved Provider. The use of the HRCI seal is not an endorsement by HR Certification Institute of the quality of this program. It means that this program has met HR Certification Institute’s criteria to be pre-approved for recertification credit. HRCI credit is an additional $10.00.

To register, please contact our receptionist at (559) 256-5000, via fax at (559) 256-5005; or via e-mail to receptionist@flclaw.net. Sign up now! Seating is limited. An RSVP is a commitment to pay. No refunds or cancellations; however, substitutions will be accepted.

 

My Former Employee Is Competing With Me, Now What?

Every business has something that provides it with a competitive advantage.  Often that something is confidential information, trade secrets, well-trained employees, or very loyal customers.  Businesses work diligently and for many years to develop its processes, formulae, and methods of conducting business.  They also spend a lot of time and energy to create and develop relationships with customers and clients, and to train employees to be successful in the business. 

Inevitably, an employee leaves to form or work with a competing business.  As part of the employee’s departure, (s)he informs customers of her decision to leave.  Perhaps the employee solicits your clients with whom you have entrusted to the employee, using the knowledge of the client’s preferences and contractual arrangement. 

What can a business do to protect itself when an employee leaves, taking or using trade secrets, or soliciting clients?  Can anything be done to stop unfair competition, particularly in light of Business & Professions Code § 16660 which encourages unfettered competition.  Can my former employee raid my business of my best employees?  What obligations does an employee have to its employer?  Should I have the employee sign an agreement not to compete, or to maintain confidentiality?  Does the employee have any duty of loyalty?  Can I sue my competitors?  When will a lawsuit protect me and my trade secrets? 

We invite business owners, managers, attorneys, and human resources professionals to attend, in person or via webinar, our monthly Legal Beagle Bagel Breakfast to learn more about what businesses can, and should, do to protect themselves against misappropriation of trade secrets, and against unfair competition.        

Thursday, September 28 2017 - 9:00 a.m. – 10:30 a.m.

7112 North Fresno Street, Suite 450; Fresno, California 93720

*This session will be available via webinar.

  

Cost: $25.00 per person (FREE for HR Business Partners); an additional cost of $10.00 per line for participating via webinar. The registration deadline for the webinar is Wednesday September 27, 2017. Fishman, Larsen & Callister is an HRCI Approved Provider. The use of the HRCI seal is not an endorsement by HR Certification Institute of the quality of this program. It means that this program has met HR Certification Institute’s criteria to be pre-approved for recertification credit. HRCI credit is an additional $10.00.

To register, please contact our receptionist at (559) 256-5000, via fax at (559) 256-5005; or via e-mail to receptionist@flclaw.net. Sign up now! Seating is limited. An RSVP is a commitment to pay. No refunds or cancellations; however, substitutions will be accepted.

 

Cross Every t And Dot Every i Or Face The Wrath Of The NLRB

What company does not want to protect  its confidential information from competitors?  One oft-used practice is to require employees to sign confidentiality agreements prohibiting the disclosure of confidential information.  Flex Frac, a non-union trucking company out of Fort Worth, Texas did just that and as a result ran into trouble with the National Labor Relations Act. 

 

The company, which delivers frac sand to oil and gas well sites, claimed that the rates it charges customers are confidential.  The company's confidentiality clause reads as follows:

 

Employees deal with and have access to information that must stay within the Organization.  Confidential Information includes, but is not limited to, information that is related to: our customers, suppliers, distributors; and marketing processes, plans and ideas, processes and plans, our financial information, including costs, prices; current and future business plans, our computer and software systems and processes; personnel information and documents, and our logos, and art work.  No employee is permitted to share this Confidential Information outside the organization, or to remove or make copies of any records, reports or documents in any form, without prior management approval.  Disclosure of Confidential Information could lead to termination, as well as other possible legal action.

 

Did you see the “unlawful” language?  I highlighted it. 

 

Flex Frac fired Kathy Lopez who subsequently filed a charge with the NLRB.  The Acting General Counsel issued a complaint alleging that Flex Frac promulgated and maintained a rule – contained in the confidentiality agreement – prohibiting employees from discussing their wages.  

 

The administrative law judge (“ALJ”) found that although there was no reference to wages or other specific terms and conditions of employment in the confidentiality clause, the clause nonetheless violated Section 8(a)(1) of the NLRA because it was overly broad and contained language employees could reasonably interpret as restricting the exercise of their right to engage in concerted activities -- discussing wages.  In a split decision, the NLRB affirmed the ALJ's ruling.  Flex Frac appealed. 

 

A workplace rule that forbids the discussion of wage information between employees is a violation of the NLRA.  However, the parties agreed that the Flex Frac rule did not expressly forbid a discussion of wages.  Thus, the court had to determine whether employees would reasonably construe the language to prohibit such a discussion.   

 

The court concluded that the list of confidential information encompasses all types of financial information, including wage costs.  According to the court, the confidentiality agreement reinforced the likely inference that the rule prohibits wage discussion with outsiders.  Moreover, the agreement did not suggest that some personnel information, such as wages, was not included within its scope. 

 

What does this mean for employers?  I recommend reviewing confidentiality agreements and any other policies that could be construed as a rule prohibiting employees from discussing their wages.  If you have a document that contains such language, modify it or provide an exclusion for employees to discuss their wages.  It’s better to do it now and avoid the claim of a disgruntled employee.  Note that in this case, Flex Frac was not a unionized shop.  Ms. Lopez was not a member of a union.  Nevertheless, the NLRB investigated and took action on her behalf.