As employers emerge from Covid-19 stay-at-home orders, they have a unique opportunity to invest in new talent and improve the quality of their team. At the same time, they need to protect their own MVPs and trade secrets.
Pre-Covid 19, unemployment was at record lows and the market for talent was overheated in many industries and locales. Now, painfully large numbers of top people from excellent companies are unemployed or underutilized, or facing pay cuts or slim to non-existent year-end bonuses.
This is an opportunity for smaller employers or start-ups to hire “big company” talent, and for larger employers to cherry pick talent from weaker competitors.
It is a Great Time to Hire
Moreover, as a practical matter, in this new era, restrictive covenants may be less enforceable, or at least less restrictive. For one thing, competitors may be litigation-averse. Many companies are preserving cash and thus less likely to spend significant legal fees on discretionary litigation, such as litigation to enforce restrictive covenants of former employees.
Furthermore, with unemployment at historic highs, a judge presented with an application to restrain or enjoin an individual from taking a new job may be more likely to view the restrictions with strong disfavor—much more so than in boom times.
Additionally, after months of court closures and limitations, judicial priorities will be elsewhere, including criminal matters and a backlog of civil jury trials.
Protecting Key Employees, Trade Secrets Is More Important Than Ever
In challenging economic times, employees with books of business or critical skills are more valuable than ever. To use an example from the legal industry: a lawyer with a portable book is always valuable, but a lawyer with a portable book when many firms are struggling for work, is particularly golden. The same principle applies to key employees in other industries.
Meanwhile, trade secrets and confidential information are particularly vulnerable during this “work from home” environment. While working from home, employees may be more casual with respect to trade secret protection (such as using unprotected devices or personal email accounts).
Similarly, IT and human resources staff working remotely may be less vigilant than usual with respect to protecting trade secrets and confidential information, as their attention is drawn elsewhere by more urgent issues.
A court charged with protecting an employer’s trade secrets will ask, as a threshold question, whether the employer took reasonable steps under the circumstances to protect its trade secrets. No employer ever wants to hear that it failed to do so.
What Should Employers Do to Protect Workforce, Trade Secrets?
First, it is critical to recognize star employees. While there is a certain equitable appeal to “across the board” pay reductions, star employees will not see it this way, even if they do not say anything. And even if an employer cannot financially reward its stars right now, it is more important than ever to recognize their contributions in non-monetary ways.
Second, employers should make sure that they are using reasonable measures to protect their trade secrets. Such measures may include: reminding employees about confidentiality and IT protocols; monitoring employee usage of employer systems and devices; and strictly following exit interview protocols upon any termination (such as requiring return of property and devices to a designated person, a certification of such return, an exit interview, and an audit of devices to ensure that confidential information was not downloaded).
Where warranted, stronger communications can notify employees that the company is watching its electronic assets and continuously monitoring downloading and copying activity.
Third, employers should be aware of the impact of terminating employees on the enforceability of restrictive covenants. In many states, such as New York, a non-compete may be unenforceable if the employee was terminated. In those situations, an employer may wish to consider having employees reiterate their restrictive covenants in exchange for severance pay.
Fourth, employers should be prepared to respond to employee requests for waivers or modifications of post-employment restrictive covenants. A modification or narrowing of a restrictive covenant, in exchange for an employee’s reaffirmation of the modified restrictions, may be viewed with greater favor by a court.
Finally, where an employee in a sensitive role decamps for a direct competitor and litigation becomes necessary, proving a theft of documents or information will be of even greater importance. Hence, imaging the employee’s laptop and preserving emails may be critical, as courts never sympathize with a thief.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.