NONCOMPETITION CLAUSES

Many firms require new employees to sign a noncompetition clause. In such an agreement, the employee agrees not to compete with the employer by starting a business or by working for a competitor for a specific time after leaving the employer. In recent years, the courts have viewed such clauses with growing disfavor; the broad scope of such agreements severely limits the former employee’s career options, and the former employer has no obligations in return.

Such agreements, by definition, constitute a restraint on free trade and are not favored by courts. To be upheld by the court, such agreements must be considered reasonable under the circumstances. Most courts analyze three major factors when making such determinations:

•  Whether the specific terms of the agreement are stricter than necessary to protect the employer’s legitimate interests.

•  Whether the restraint is too harsh and oppressive for the employee.

•  Whether the restraint is harmful to the interests of the public.

If an employer chooses to require a noncompetition clause from its employees, care should be taken to ensure that the conditions are only as broad as are necessary to protect the employer’s specific, realistic, limited interests. Clauses which prohibit an employee from working in the same specific application for a short time (one to three years) are usually not considered unreasonable.

For example, a noncompetition clause which prohibits a former employee for working for a direct competitor for a period of two years may be upheld by the court, whereas a clause which prohibits a former employee from working in any facet of information processing or information security will probably not be upheld.

The employer should enforce the clause only if the former employee’s actions represent a genuine threat to the employer. The court may reject broad restrictions completely, leaving the employer with no protection at all.

PRECAUTIONARY MEASURES

Organizations can take several precautionary steps to safeguard their information assets. Perhaps the most important is to create a working atmosphere that promotes employee loyalty, high morale, and job satisfaction. Employees should be aware of the need for secrecy and of the ways inappropriate actions could affect the company’s success.

Organizations should also ensure that their employees’ submissions to technical and trade journals do not contain corporate secrets. Trade secrets lose their protected status once the information is available to the public. Potential submission to such journals should be cleared by technically proficient senior managers before submission.

Intelligent restrictions on access to sensitive information should be adopted and enforced. Confidential information should be available only to employees who need it. Audit trails should record who accessed what information, at what times, and for how long. Sensitive documents should be marked confidential and stored in locked cabinets; they should be shredded or burned when it is time to discard them. (It should be noted that some courts have held that discarded documents no longer remain under the control of the creator and are in the public domain.) Confidential programs and computer-based information should be permanently erased or written over when it is time for their destruction. These measures reduce the chance of unauthorized access or unintentional disclosure.

To maintain information security, organizations should follow these steps in their personnel practices:

•  Choose employees carefully. Personal integrity should be as important a factor in the hiring process as technical skills.

•  Create an atmosphere in which the levels of employee loyalty, morale, and job satisfaction are high.

•  Remind employees, on a regular basis, of their continuous responsibilities to protect the organization’s information.

•  Establish procedures for proper destruction and disposal of obsolete programs, reports, and data.

•  Act defensively when an employee must be discharged, either for cause or as part of a cost reduction program. Such an employee should not be allowed access to the system and should be carefully watched until he or she leaves the premises. Any passwords used by the former employee should be immediately disabled.

•  Do not be overly distrustful of departing employees. Most employees who resign on good terms from an organization do so for personal reasons, usually to accept a better position or to relocate. Such people do not wish to harm their former employer, but only to take advantage of a more suitable job situation. Although the organization should be prepared for any contingency, suspicion of former employees is usually unfounded.

•  Protect trade secrets in an appropriate manner. Employees who learn new skills on the job may freely take those skills to another employer, as long as trade secrets are not revealed.

•  Use noncompetition clauses only as a last resort. The courts may not enforce noncompetition clauses, especially if the employee is unable to find suitable employment as a result.