Not every employee needs a noncompete

Noncompetition agreements are fabulous tools. They protect employer’s trade secrets and other confidential and proprietary information, customers, goodwill, and special training and skills your employees acquire at your expense. But, not every employee is worthy of locking down with such an agreement.

For example, consider Mark Philips Salon & Spa v. Blessing (Ohio Ct. App. 1/28/11) [pdf]. The salon hired Blessing as a hair stylist. Blessing signed a noncompetition agreement on her first day of employment. When she resigned to accept a position at a competing salon less than five miles away, she got sued. Even though Blessing admitted that she violated the agreement by soliciting former customers, the court of appeals concluded that it was unreasonable for the salon to enforce the agreement against her:

Blessing testified that she was an experienced hair dresser and had worked for two other salons previous to her employment with MPS. Blessing brought approximately thirty clients with her to MPS, and while there she acquired approximately twenty more. Blessing testified that virtually all of her clients are obtained through referrals from other clients, and there is no evidence that MPS did anything that benefitted Blessing in obtaining any of her clients. Blessing also testified that MPS gave her no particular training or skill that she uses…. Blessing testified that after she left MPS she created a list of all her former clients “from my brain, from my knowledge.” There is no evidence that she obtained that information from a database or list maintained by MPS.

By engaging in competition with MPS as she has, and especially by mailing solicitations to clients she obtained while employed by MPS, Blessing violated her agreement with MPS in those respects. However, on this record there is nothing in the competition with MPS in which Blessing has engaged that makes it unfair. Blessing uses no trade secrets or competitive advantages she obtained from MPS. The competition MPS seeks to prevent is merely ordinary competition. Therefore, the covenant not to compete cannot be enforced.

What lessons can employers learn from this case? Noncompetition agreements are wonderful tools that all employers should have in their shed. Employers, however, should use narrowly drafted noncompetition agreements that only reach those legitimate interests worthy of protection. And, if there is no such interest, consider foregoing an agreement at all. Otherwise, you might end up spending lots of money in court in a vain attempt to enforce an unenforceable contract.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Do you know? Challenging non-competition agreements

While my practice is heavily slanted towards the representation of management in employment disputes, from time to time I represent employees. Usually, it’s in an advisory role with non-compete agreements, when someone leaves one position for another.

Employees faced with a non-compete when leaving a job to work for a competitor or quasi-competitor have three choices:

1. Approach the old employer—either as part of severance negotiations or otherwise—and attempt to negotiate or buy your way out of the non-compete.
2. Work for the competitor and wait to get sued.
3. Preemptively sue your old employer seeking a declaration that the non-compete is invalid.

In all likelihood, if you ignore option number 1, or negotiations fail, you, and maybe your new employer, will get sued. The latter option, though, has some great upside for employees with specious non-competes. It lets you control the timing and venue of the lawsuit. It also lets you play offense instead of defense in trying to void or modify an overly broad agreement. For a good example of where this strategy worked well, see Jacono v. Invacare Corp. The downside, of course, is the expense. Something to consider if you are faced with a new job and a non-compete of dubious enforceability.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

If you want something to be a trade secret, don’t publish it

While it seems like common sense, for something to be a trade secret it must actually be secret. Rogers Indus. Prods. v. HF Rubber Machinery (Ohio Ct. App. 7/21/10) [pdf] serves as a good illustration. Rogers alleged that the various defendants had used confidential information about its tire curing press to copy the unique design of its system. Rogers’s problem was that it had publicly disclosed its press design in a patent application before the alleged trade secret theft. The court concluded there is no trade secret protection for confidential information that is disclosed in a published patent application, but that a factual issue existed as to whether the patent application disclosed the specific trade secret at issue.

Aside from not publishing trade secrets in patent applications (or other public documents), what are some of the other things your company should be doing to protect its trade secrets?

• Limited access on a need-to-know basis.
• Documents kept under lock and key.
• Password-protected data files.
• Confidentiality and non-disclosure agreements for anyone with knowledge or access.
• Lawsuits to recover stolen or misused secrets.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

If you can’t trust your son…. Multi-million dollar jury verdict for boss’s son’s theft of trade secrets

According to the Youngstown Business Journal, a federal court jury awarded Allied Erecting & Dismantling $3.046 million for claims that its president’s son, Mark Ramun, misappropriated trade secrets while working for a competitor, Genesis Equipment & Manufacturing. The article describes the dispute:

At the center of the dispute is a product Allied … developed…. Between 1992 and 2001, court papers say, Mark Ramun had access to “highly confidential proprietary information and documentation” related to the Allied MT while employed at the company. Those trade secrets, Allied alleged, were given to Genesis after the company hired the younger Ramun in 2003. Allied argued in its case that Mark Ramun kept nearly 15,000 documents that contained “a substantial array of highly confidential and proprietary information.”

There is a good lesson to be learned from this story. When there is money to be made, even those who you trust the most are apt to let you down. I don’t know what the relationship between senior and junior Ramuns was like (although I’m pretty sure they won’t be sharing a Thanksgiving turkey anytime soon). I am confident, however, that dad never for a second thought his son would divert confidential information to a competitor. Even those who you trust the most should be locked down with agreements, and diligently pursued when they breach your trust.
[Hat tip: Trade Secrets Blog]

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Illustrating the duty of loyalty

About a month ago I wrote about the an employee’s duty of loyalty to his or her employer. Here’s some of what I said:

Just because an employee is not subject to a noncompetition agreement does not mean that he or she cannot be liable for mistakes made on the way out the door. In fact, each and every employee owes his or employer a duty of loyalty up to the moment he or she ceases employment.

Two recent stories illustrate how this duty of loyalty works in the real world:

• This morning, The Word on Employment Law with John Phillips commented on a New York Times report that MSNBC indefinitely suspended one of its most prominent anchor David Shuster. His transgression – testing a new show for CNN.

• Molly DiBianca at the Delaware Employment Law Blog and Rob Radcliff’s Smooth Transitions both provide their takes on a recently filed non-competition lawsuit in which the chief evidence of the breach comes from the defendants’ LinkedIn accounts.

Even without non-competition agreement, an employee cannot serve two masters at the same time. While in your employ, an employee has an absolute duty to act in your best interest, and not to act in the interest of anyone else that is contrary to yours. For example, an employee cannot solicit customers or employees for a competing venture while still working for you. If you find out that a current employee might be competing, your best course of action:

1. Call your attorney.
2. At a minimum, suspend the employee pending an investigation, which should also include suspension of all computer and network access.
3. Upon confirmation of the competition, convert the suspension to a termination.
4. Consider legal action depending upon the scope of the competition and the harm caused.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Do you know? The duty of loyalty: illegal competition vs. legal preparation

There are right ways and wrong ways for an employee to leave your company. Just because an employee is not subject to a noncompetition agreement does not mean that he or she cannot be liable for mistakes made on the way out the door. In fact, each and every employee owes his or employer a duty of loyalty up to the moment he or she ceases employment.

Your employee may prepare to compete against you while still in your employ without violating this duty of loyalty. There are many reasons why an employee may choose to prepare to compete while still employed. Some need the income provided by ongoing employment. Some want a degree of certainty that their new competitive venture will be ready to operate. Some may derive an eventual competitive advantage from continued association with their present employer (such as knowledge of pricing or business plans, or ongoing associations with key employees, customers, and vendors).

There are certain steps that an employee can legally take to prepare to compete without violating this duty of loyalty, even while still employed and even if done stealthily:

• Incorporating the new firm.

• Arranging for space and equipment.

• Securing financing.

• Making future business plans.

But, those preparation are subject to certain legal limits while still employed. The duty of loyalty prohibits employees from doing any of the following while still your employee:

• Using your property (computers, for instance) to prepare to compete.

• Using confidential information or trade secrets to prepare to compete.

• Starting the competing operation.

• Soliciting employees or customers for the new enterprise.

• Holding back business opportunities or diverting them to the new enterprise.

What can you do to prevent employees from engaging in these illegal activities? Consider these 6 ideas.

1. Require that key employees sign noncompetition agreements.

2. Consider requiring a wider subset of employees sign non-solicitation agreements.

3. Have all employees sign confidential information and trade secret policies, or, at a minimum, incorporate these policies into your employee handbook.

4. Incorporate statements about employee loyalty into the handbook.

5. Do not accept notice periods upon resignation for any employee who you think is a risk to compete.

6. Consider forensic examinations of computers and email accounts for any employee you reasonably believe was engaging in unlawful conduct during his or her employment.

These tips will not magically transform a disloyal employee into your lap dog. They will, however, place you in a position to hold the disloyal employee accountable for his or her actions.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

How much is a non-compete worth?

According to one Ohio appellate court, $500,000. Marketing Associates v. Gottlieb (1/14/10) [pdf] upheld a half-million dollar jury verdict against an employee who breached a non-compete by resigning and targeting his former employer’s largest client after opening his own shop.

Non-competition cases tend to follow a pattern. An employee resigns, the ex-employer’s attorney sends out a cease-and-desist letter if competitive activities are threatened or suspected, a lawsuit is filed, and injunctive relief is sought trying to prevent the employee from competing, soliciting customers and employees, and using trade secrets and other confidential information.

Separate from the injunctive relief, though, non-competition agreements have a value. Employees who compete against a former employer in the face of a non-compete not only run of the risk of a court entering an injunction and putting them out of work, but also that any money earned in violation of the non-compete will be paid over to the former employer as damages. And, if the employer can show that an employee breached a duty of loyalty while still employed (misappropriating files or information or diverting customers, for example), that damage figure will only go up.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Do you know? Garden leave contracts

Last week I attended the ABA’s Labor & Employment Conference. Over the next several weeks, I’ll be sharing with my readers some of the best and most interesting nuggets of information I took away from the meeting. We start today with garden leave contracts.

There is nothing more frustrating for a company than a court refusing to enforce a noncompetition agreement, permitting an employee to work for a competitor. Courts have been historically skeptical about the enforcement of such agreements. In today’s economy it has become even more difficult to enforce them. Judges simply do not want to enjoin a family’s breadwinner from working. At best, the enforcement of even the most narrowly drafted noncompetition agreement is a roll of the dice, dependent as much upon the personal whims of the judge hearing the case as the law of your specific jurisdiction.

So, how do you protect your employees, confidential information, customers, and good will without using a suspect noncompetition agreement? Think about using a garden leave contract.

The concept of “garden leave” originated in the UK. It describes the practice of an employer paying an employee to stay on the sidelines during a set period of time following the end of their employment (the garden being where a UK employee would spend free time). A typical garden leave contract requires a lengthy advance notice of resignation, prohibits certain competitive activities during the notice period, and requires that the employee be sent home but still get paid his or her full salary and benefits during the notice period. Alternatively, employers can modify a traditional noncompetition agreement to provide pay during the employee’s time on the sidelines. The latter, however, carries greater risk as it would still be subject to the same analysis as a traditional noncompetition agreement, albeit with less impact on the employee.

Provided that an employee has enough value, garden leave clauses provide many of the same benefits as a traditional noncompetition agreement – the employer is provided time to replace the departing employee, delay competition by the departing employee, cultivate relationships with clients and customers, and maintain good will. Also, because the employee remains an employee during the paid notice period, concepts like the duty of loyalty (which prohibits solicitations of customers and other employees, as well as the misuse of confidential information) remain in place and protect the employer.

Consider garden leave contracts. They are cost effective, at least as compared to the price of enforcing a noncompetition agreement, and a potentially less risky avenue to obtain the same goals.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

How to recover a stolen computer in four easy steps

Law.com reports that 60% of employees who are laid-off, fired, or quit  admit to stealing company data. I previously reported that it costs an average of $50,000 to replace a stolen computer, with 80% of that value coming from the recovery of sensitive, confidential, and proprietary information. When you put these two pieces of information together, it becomes increasingly apparent that businesses must take proactive steps to protect their technology and data.

According to a case recently decided by a Missouri federal court, employers can use the Computer Fraud and Abuse Act (CFAA) to recover a stolen laptop. The CFAA is a federal law that creates a private causes of action for individuals or businesses damaged by computer fraud. In Lasco Foods v. Hall & Shaw Sales & Marketing, the district court permitted the employer to pursue a claim under the CFAA against two ex-employees who failed to return their laptops after resigning to start a competing enterprise. The ability to use the CFAA in this context is an important weapon for employers, because it allows for the recovery of a variety of damages and costs, including forensic investigation fees incurred in examining the computer after its return.

Yet, litigation is just one step in an overall four-step plan I recommend to secure corporate technology from ex-employees:

1. Institute a strong Electronic Communication and Technology Policy, making clear that all data and equipment belong to the company, and must immediately be forfeited upon the end of employment.

2. Remind employees upon termination or resignation of their duty to return all data and equipment, including laptops.

3. If any data or equipment is missing, enlist the aid of an attorney to send a friendly, yet clear message that unless everything is returned immediately, the company will enlist the aid of a court.

4. Sue.

Notice that a lawsuit against the employee is step four, not step one. Going to court is the last resort. It should always be the last resort. It is expensive and time consuming. Yet, it many instances it is unavoidable. The CFAA, at least as some courts are interpreting it, provides employers with a key weapon in combating employee theft of computer equipment if one is left with no choice but to sue.

[Hat Tip: EBG Trade Secrets & Noncompete Blog]

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Handling ex-employees’ data

In this morning’s Wall Street Journal, Joseph De Avila features me in an article on how companies handle a laid-off employee’s digital belongings. Mr. Avila’s article got me thinking about an interesting related issue. A business can buy a new computer for a thousand dollars. However, according to a recent five-month study commissioned by Intel, that same computer costs an average of $50,000 to replace. That Intel study found that 80% of the value inherent in a lost or stolen computer is attributed to the sensitive, confidential, and proprietary information stored on that computer.

The Business of Management reports on the the following findings from this Intel study:

• The individual losses varied from $1,213 to an astounding $975,527.

• The cost of recovery is directly related to how quickly the company learns of the loss. If the company discovers the loss the same day, the average cost is only $8,950. That average cost rises more than ten-fold, to $115,849, in the matter of just a week. 

These findings become even more important as more employees face the unemployment line through lay-offs and other job losses.

Because of the exponential increase in costs associated with even a week’s delay in recovering an ex-employee’s computer, it is incumbent upon employers to secure employees’ computers and data before they walk out the door. Some proactive steps for companies to take include:

1. Distributing to employees comprehensive electronic communication policies that cover all types of technology in use at the company (computers, voice mail, email, mobile devices, social networking, internet use, instant messaging, etc.). The policy is critical to establish employees’ expectation about proper uses for technology, and also what belongs to the employee and what belongs to the employer.

2. Once an employee leaves employment, voluntarily or involuntarily, immediately shut-off their network access and secure the return of all company-owned technology, files, and data.

3. Consider what information of the former employee is worth keeping and what can be destroyed. For example, in professions where communications with clients are important (like law, sales, or finance), companies might keep emails and contact data.

4. Lastly, to quote myself from Mr. Avila’s article: “If they think an employee has stolen anything, they will look for that…Companies fearing lawsuits from disgruntled former employees may have their IT department or an outside firm search through the emails, too.”

I generally do not preach draconian employment policies. A business, however, cannot be too careful with securing its data and information. Leniency and lax policies can result in the loss of information and data that can prove very costly to recover.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Be careful what you ask for

Non-competes are a curious breed. They are often used, but difficult to enforce. What's the harm in trying, you might ask? If an employee signs a non-competition agreement and goes to work for a competitor, why not roll the dice and see if you can extract your pound of flesh from the former employee and your rival?

U.S. Foodservice v Marzich (N.D. Ohio 9/2/08)* illustrates the dangers. As a result of U.S. Foodservices's attempt to enforce a non-compete agreement against former executives, it is now faced with an Opinion and Order from a federal court that its agreement is invalid as a matter of law:

The breadth of solicitation and confidentiality covenants certainly extend beyond the reach necessary for the protection of Foodservice's business interests and presents an undue hardship on the Former Employees in violation of Maryland's law on restrictive covenants.... The Agreement lacks the narrow tailoring necessary to merely prevent the Former Employees from trading on the goodwill they created while serving Foodservice customers. Rather, the restrictive covenants appear designed to prevent any kind of competition by the Former Employees, which is not a legally protected interest under Maryland law.... While Foodservice has a legitimate interest in protecting its customer relationships, it does not have a legitimate interest in limiting ordinary competition. By prohibiting the Former Employees from soliciting business, "directly or indirectly" from any "Persons" in the universe of "Customers" who have ever made "contact" with Foodservice, "whether or not these [contacts] resulted in sales," the Agreement prohibits the Former Employees from engaging in conduct that could only reasonably be construed as ordinary competition.

If the company cannot enforce a non-compete against former executives, who can it enforce it against? A national company with more than 27,000 employees is now faced with the prospect of having an agreement that it can never enforce against anyone. For current employees, it will have to go back to the drawing board. For former employees, in the words of one of my former law professors, it's too bad, so sad, hard cheese.

This case certainly gives companies something to consider the next time an employee goes to work for a competitor.

*Full disclosure: KJK represents the defendants.

Being upfront about a non-compete agreement can save a lot of headaches

Monday's Chicago Tribune had an interesting piece about the proliferation of non-compete agreements in today's business environment. Quoting from the article:

In an economy where information and relationships rule, businesses are quicker to try to limit the damage when people leave. And it's no longer just executives and high-tech workers whom companies worry about.... Employees encounter non-compete, non-disclosure and non-solicitation issues coming and going. The forms often sit in the stack of papers that new hires are asked to sign their first day on the job. And restrictive covenants invariably get tacked on severance offers in layoffs and firings.

The article quotes Diana Smith, managing director of The Novo Group, a Chicago recruiting firm, who advises that companies and job applicants should be up front and open about non-compete agreements:

"Companies that want to recruit from their competition will find ways to make it work. People should be really open in their discussions and not be afraid that it's going to stop the show. Chances are you're going to find a way to work around it."

Ms. Smith's point is important for employers to take to heart. Despite the existence of an agreement, companies may or may not have a real interest in enforcing a non-compete agreement against a former employee. Factors that the former employer might consider are the level of the employee, the circumstances surrounding the employee's departure, the employee's customer and industry contacts, and what trade secrets and other confidential information the employee was privy to.

Nevertheless, when an employee who has signed a non-compete goes behind the old employer's back to work for a competitor, the old employer is forced into action to send a message to all of the other employees who have signed non-compete agreements that the company takes them seriously and will enforce them if pushed to do so. Past enforcement is also a factor that courts look at in examining whether to grant an injunction enforcing a non-compete agreement.

On the other hand, what happens if the new employer picks up the phone and calls the old employer to ask for permission to hire the applicant despite the non-compete? The old employer may say yes if it does not want to run up attorneys' fees by attempting to enforce a non-compete against a marginal employee. Further, by allowing the new employer to hire the employee, the old employer will signal that it expects the same courtesy in the future - that is, at least a phone call before an employee is hired. And, if the old employer says no, the new employer has not lost anything, because hiring the employee will most likely result in litigation anyway.

Asking about the existence of a non-compete or other restrictive agreement should be boilerplate in virtually all hiring processes. Picking up the telephone and asking for an employee to be released from a non-compete for a particular job costs nothing, and could save significant heartache down the road by staving off litigation that the old employer may feel compelled to bring to save face.

Ohio Supreme Court holds that retained memory can constitute a trade secret

It has long been thought that under Ohio's trade secret statute, R.C. 1333.61, that which an employee holds in retained memory does not meet the definition of a trade secret. Thus, prior courts have differentiated, for example, between employees who remove documents or files and those who recreate the contents of those documents from memory. The former were covered by the trade secret statute, while the latter were not. This week, the Ohio Supreme Court, in Al Minor & Assoc., Inc. v. Martin, has upended this conventional wisdom, and in doing so has greatly expanded the enforceability of not only the trade secret law, but also noncompetition agreements.

R.C. 1333.61(D) defines a "trade secret" as:

[I]nformation, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

(1) It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

(2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

At issue in Al Minor & Assocs. v. Martin was whether a customer list compiled by a former employee strictly from memory can form the basis for a statutory trade secret violation. The Ohio Supreme Court unanimously answered this question in the affirmative, holding that information that constitutes a trade secret under R.C. 1333.61(D) does not lose its character by being recreated from memory. In reaching its conclusion, the Court relied upon the language of the statute, which does not differentiate between physical information and that which is reproduced from memory.

While this will change the landscape of trade secrets, it does not alter the longstanding rule that information which can otherwise be discovered through reasonable means does not qualify as a trade secret. Thus, customer lists often lose trade secret protection if they can be reverse engineered, such as by simply looking in the phone book. This decision, however, will make it more difficult for an employee to demonstrate that a customer list was reverse engineered, because of the fact that the fruits of such reverse engineering is often the product of the employee's memory.

This case will not only expand trade secret protection, but also the class of employees against whom noncompetition agreements can be enforced. One of the key factors that courts examine in the enforcement of such agreements is whether the agreement seeks to protect a legitimate interest of the employer. That component will be much easier to satisfy with the expansion of trade secrets to include retained memory.

This decision will be a boon for employers who want to protect information or lock up employees with noncompetition agreements. The flip side, however, is that employers must now be more diligent than ever in the hiring process. It will no longer be enough to simply ask that an employee not bring anything (documents, files, etc.) with him or her to a new job. At the same time, it is impossible to ask an employee to turn off his or her mind or erase his or her memory.

Thus, one possible unintended consequence of this decision will be an increase in the transaction costs of recruiting and hiring. Anytime an employee is recruited, that employee now has the potential to bring trade secrets with him or her in memory. The recruiting process might now have to include the former employer in the hiring process to ensure against any future legal claims concerning retained memory trade secrets. Otherwise, I don't know how an employer hiring anyone who had access to anything that could remotely be construed as a trade secret can have any comfort level with the hiring.

Ohio appellate court tolls noncompete while litigation pending

Homan, Inc. v. A1 AG Services, LLC, decided this week by the 3rd District Court of Appeals, answers the following question: if an employer believes a former employee is violating a noncompetition agreement, but does not seek a preliminary injunction, is the time period in the noncompete agreement nevertheless tolled while the case is litigated?

The basic facts of the case are as follows. Kaiser signed a 3-year, 150 mile noncompetition agreement as a condition of his employment with Homan. In January 2004, Homan filed bankruptcy and either laid off or terminated its employees, including Kaiser. Immediately thereafter, Kaiser and his wife started a new business for the express purpose of competing against Homan. When Homan reminded Kaiser about his noncompete, he stopped working for his new business, but a year later rejoined the business, deciding that 1 year was long enough for him to sit out. Within 3 months, Homan sued to enforce the noncompete. It took nearly 2 years for the trial court to decide in Kaiser's favor.

The appellate court determined that a 2-year noncompete was reasonable, and reverse the trial court's judgment. Notably, the Court found that even though the noncompete had already expired, it was retroactively enforceable against Kaiser:

[A] covenant not to compete may not expire while the enforceability of that contract is being litigated…. [T]he plaintiff "should not be denied the benefit of their bargain simply because the time period specified in the negative covenant all but expired while [the plaintiff] sought to enforce the contract through the court system." … [T]he covenant was not enforced while litigation was pending, leaving the defendant to engage in direct competition with the plaintiff…. [I]f it held that the contract had expired during resolution of the litigation, it would be "sanctioning litigation as a delay tactic. All an individual would have to do would be to contest the negative covenant in court until the restrictive time period elapsed. If this were true, covenants not to compete would be virtually ineffective."

Thus, the Court of Appeals found that the trial court erred in ruling that the noncompete agreement had expired.

This decision completely ignores the practicalities of litigation in noncompete cases. At the outset of the litigation, the former employer has a clear remedy available to prevent a noncompete from expiring and the case becoming moot while the litigation is on-going – a preliminary injunction. A preliminary injunction maintains the status quo until the litigation is over, keeping the contract in force. If Homan was concerned about Kaiser's noncompete agreement expiring during the litigation, Homan should have moved for a preliminary injunction. No one be punished because a former employer sat on its rights and failed to avail itself of this widely recognized remedy. A holding that noncompete agreements are tolled during litigation rewards the former employer that fails to act to protect its rights.

The bottom line, Homan notwithstanding – don't wait to enforce noncompete agreements. Temporary Restraining Orders and Preliminary injunctions are available to halt employees who are violating noncompetes, and should be timely used to enforce the agreement while its merits are litigated.

Remedies available for destruction of computer files

Employers can take a lot of internal steps to protect confidential and proprietary information. Confidentiality and non-disclosure policies, limiting distribution to a need-to-know basis, passwords to secure data, locks for file cabinets, and security cameras are some of the more common tools at an employer's disposal. One thing that is difficult to guard against, though, is a disgruntled employee purposely sabotaging or destroying data, which is exactly what Fox News is reporting happened to an architectural firm in Jacksonville, Florida. An employee saw a help-wanted ad in the newspaper for her job, assumed she was about to be fired, went into the office late at night, and erased 7 years' worth of drawings and blueprints worth $2.5 million.

In cases such as these, where an employee erases data, the employer has a federal statutory remedy – the Computer Fraud and Abuse Act. This criminal statute generally prohibits one from causing the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization to a protected computer.

The seminal case for employee liability under this statute is International Airport Centers v. Citrin. In that case, Citrin decided to quit his employment with IAC and going into business for himself. Before returning his laptop to IAC, he wiped the hard drive loading a secure-erasure program, permanently erasing all of the stored data. His intent was not only to prevent his employer from recovering his work product, but also to hide the improper conduct in which he had engaged before he decided to quit. The 7th Circuit permitted IAC to pursue a private cause of action against Citrin under the Computer Fraud and Abuse Act. To date, no Ohio Court that I am aware of has ruled on whether this liability is available under the CFAA.

While courts are still wrestling with the limits of the CFAA in the employment context, it provides employers with a powerful weapon against disgruntled employees and employees who seek to harm an employer for anti-competitive purposes. To try to deter this type of conduct in your workplace, think about putting language into employee handbooks that informs employees that it would be a violation of federal law to engage in this type of industrial espionage.

[Hat tip: Strategic HR Lawyer]

Some lessons in handling departing employees and their files

ESPN is reporting that football program files have gone missing from the University of West Virginia office of former coach Rich Rodriguez, who left West Virginia for Michigan. From espn.com:

West Virginia University said Tuesday it will investigate the disappearance of player and football program files found to be missing from the former office of ex-Mountaineers coach Rich Rodriguez.

West Virginia University said Tuesday it will investigate the disappearance of player and football program files found to be missing from the former office of ex-Mountaineers coach Rich Rodriguez.

Paperwork detailing every player on West Virginia's roster, as well as the program's activities over the past seven years, went missing between Rodriguez's resignation as coach to take over at Michigan and the team's return from the Fiesta Bowl, the Charleston (W.Va.) Gazette reported....

After returning to work about a week ago, the staff at WVU's Puskar Center found that most of the files that had been stored in Rodriguez's office, as well as the players' strength and conditioning files in the weight room, were gone, the Gazette reported.

"It's unbelievable. Everything is gone, like it never existed," a source within the athletic department, who spoke on the condition of anonymity, told the Gazette. "Good, bad or indifferent, we don't have a record of anything that has happened." ...

According to the source, the missing files include all of the players' personal files, which encompass contact information, scholarship money awarded, class attendance records and personal conduct records, the Gazette reported....

According to the report, multiple sources said several people in the Puskar Center reported seeing Rodriguez and at least one of his assistants, video coordinator Dusty Rutledge, in Rodriguez's private office shredding paperwork on Dec. 18 -- the day he returned from Ann Arbor after being named Michigan's new head coach. Those who say they witnessed the action said they either paid it no mind or did not know what was being destroyed, according to the report....

West Virginia and Rodriguez are in the midst of a messy legal battle over his departure from Morgantown. The university is trying to recover $4 million from Rodriguez for leaving with six years remaining on his contract. Rodriguez, in turn, said West Virginia breached the contract by not fulfilling all of its terms of the deal.

If Coach Rodriguez took the files, I certainly hope that his attorney is advising him to return them. I couldn't imagine that Coach would try to leverage these valuable documents into a settlement of his other legal issues with the university.

Intrigue aside, Rich Rodriguez's plight is a good learning exercise for employers and employees. Unless there is an agreement that states otherwise, what an employee creates during his or her employment is the property of the employer. The employee is working for the benefit of the employer, and is being paid for it. Accordingly, the employer, and not the employee, owns the files and documents. Because it is the employer's property, the employee has no right to take the property with him or her at the end of employment. These issues are the same whether we are talking about paper or electronic files.

Some take away points for everyone:

• Make sure expectations are clear on the way in the door - handbooks, policy manuals, and employment agreements should clearly state that everything that is created during employment belongs to the company, and that it is expected to be left with the company at the end of employment.
• Supervisors and managers need to be trained so that they do not make any statements contradictory to the policy upon which an employee could claim reliance.
• As best as possible, monitor what employees take out of the company during their employment. Few jobs today are 9 - 5. More and more employees take work home, and some even telecommute. It becomes very difficult to keep tabs on where stuff is, and the more stuff taken out of the office or downloaded, the harder it will be to have it returned if an employee leaves. The good thing about e-mail and portable media is that at least they generally leave a trace that something was taken.
• Reinforce the policy during an exit interview by reminding the employee of the expectation that nothing will leave the company with him or her, and that everything must be returned immediately.
• When all else fails, a letter from a lawyer to a former employee and the new employer goes a long way to getting the documents returned.

An argument for broader protection of confidential and proprietary information

Nelson Jewellery Arts Co. v. Fein Design Co., out of the 9th District Court of Appeals, involves two companies fighting over what we can only assume is a key employee. As is often the case in such disputes, the old employer claimed that the employee took with him to the new employer certain confidential and proprietary information, such as pricing and customer information. The appellate court, however, rejected the claim because the information did not meet the statutory definition of a "trade secret." It was readily ascertainable by other means such as telephone books and trade publications, and the company did not take reasonable measures to maintain the secrecy of its alleged confidential information. Therefore, the claim was dismissed. In so ruling, the court rejected any common law protection over the information, and limited the law's reach to that narrow category of corporation information that meets the specific statutory definition of a "trade secret" pursuant to O.R.C. 1333.61(D):

(D) "Trade secret" means information, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

(1) It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

(2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

This case raises the question of what corporate information should the law protect. Is is just information that meets the statutory definition of a trade secret, or is some broader category of information worthy of legal protection? It seems that companies should be able to stop employees from walking out the door with corporate information whether or not such information qualifies as a trade secret. After all, that which a company creates is its property, and it should be able to prevent its disclosure to or use by a competitor. Limiting such protection merely to "trade secrets" is overly restrictive, and ignores the property interest that businesses have in their documents, data, and other information.

How do we help put ourselves in the best position to protect stuff that may not meet the high threshold of a trade secret? Let me make a few suggestions:

1. Put provisions in employee handbooks that define the scope of the company's property - not just as trade secrets, but as all confidential and proprietary information, and everything that is created by or for the company.
2. Separate and apart from the employee handbook, have all employees who will come in contact with any information you might want to protect sign an agreement that defines what belongs to who, and specifically sets forth the company's right to the information at the end of employment.
3. When an employee leaves, have that employee sign a receipt that all company property and information has been returned, and that the employee is not taking anything with him or her. Where the separation is not voluntary, it may not always be easy to have the employee sign something on his or her way out the door. In that case, you can still protect yourself by sending the employee a certified letter reminding him or her of the corporate policy and their agreement to it.
4. If you think the ex-employee is not being forthcoming with you, correspond with the new employer, placing it on notice that you will hold it responsible for any of your information that is in its possession.
5. When all else fails, litigate. Bear in mind, however, that adherence to steps 1 - 4 will put you in a much better light should you have to litigate to seek protection over your information, whether or not it qualifies as a trade secret.