If a former employee is using your proprietary information to compete with your company, you may have more than one option for how to handle the situation. The options you have depend in part on whether you have a valid non-compete agreement with that employee.
A non-compete may not be necessary for you to take action. For example, if the ex-employee is infringing on your intellectual property and that property is suitably protected, you can sue the person — and their new employer — for infringement.
A non-compete agreement offers somewhat broader protection. A valid non-compete can prevent your former employee from using what they learned from you to start or support a competing business. You don’t have to prove that the former employee infringed on your intellectual property. All you have to prove is that they are attempting to compete in violation of the agreement. That said, non-compete agreements need to be reasonable or they may not be enforceable.
Reasonable non-competes must protect legitimate business interests
Courts have become wary of non-compete agreements that are so broad that they limit a worker’s ability to make a living with the skills they have. Any non-compete agreement limits the worker’s choices to some degree, but the courts won’t enforce such an agreement if it places unreasonable restraints.
To be considered valid, non-compete agreements need to serve a legitimate business interest. These include things like protecting confidential information or long-standing client relationships. Simply keeping the number of competitors to a minimum is not considered a legitimate business interest.
Next, the non-compete agreement must provide some benefit for the employee. If they signed it as a new hire, that includes the job offer. If they signed as an existing employee, however, you will need to give them a small benefit in exchange for their agreement to sign. Otherwise, it might not be enforceable.
Beyond that, non-compete agreements need to be reasonable in their time period, business reach and geographic scope. Depriving your ex-employee of the right to take jobs for too long of a time, in too broad a definition of industry, or in too large an area can invalidate your non-compete agreement.
While there is no specific definition of reasonable, you should consider each employee’s situation individually. Courts will support stricter non-compete agreements for higher-level employees with significant access to proprietary information. Avoid having every employee sign a boilerplate agreement with the same terms.
For help drafting effective non-compete agreements, contact an experienced business attorney.