Protecting Your Confidential and Proprietary Information Employee’s Duty of Loyalty, Trade Secrets, Non-Compete Non-Solicit and Confidentiality Agreements

Protecting Your Confidential and Proprietary

InformationEmployee’s Duty of Loyalty, Trade Secrets,

Non-Compete Non-Solicit and Confidentiality Agreements

2013 PWSHRM and VFN EMPLOYMENT LAW SUMMIT

October 4, 2013

Presented by:

Kristina Keech Spitler, Esq.

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Vanderpool, Frostick & Nishanian PC

Where Business Goes SM

Copyright 2013 Kristina Keech Spitler All rights [email protected]

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Vanderpool, Frostick & Nishanian PCWhere Business Goes SM

Copyright 2013 Kristina Keech Spitler All rights reserved

This presentation and information is designed to provide general information, is not intended to constitute legal advice and should not be utilized as a substitute for professional services in specific situations. If legal advice or other expert assistance is required, the services of a professional should be sought.

Kristina Keech Spitler, Esq. is a partner with the law firm, Vanderpool, Frostick &

Nishanian, P.C., where she represents and advises businesses on employment and business issues and litigation including matters relating to hiring and firing, breach of agreements, non-competes and restrictive covenant agreements, discrimination, disabilities and accommodations under the Americans with Disabilities Act, Fair Labor Standards Act (wage and hour law), Family Medical Leave Act, defamation, and other legal concerns for employers. In addition, her practice includes drafting and updating handbooks and policy manuals, and drafting severance agreements. Ms. Spitler is a highly rated speaker and trainer on employment law issues.

Ms. Spitler was recognized as one of Virginia’s “Legal Elite” in Labor/Employment Law by Virginia Business Magazine in 2010 and 2012. In 2009, Ms. Spitler was named as one of Virginia’s “Most Influential Women” by Virginia Lawyers Media. She received The Loy E. Harris Award from the Mayor of the City of Manassas in 2008.

Ms. Spitler has been a featured speaker on employment law issues on WUSA Channel 9 News and has served as a resource and quoted in Workforce Management Magazine.

Contact at [email protected] or (703) 369-4738

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“While no single conversation is guaranteed to change

the trajectory of a business, a career, a marriage, or a life,

any single conversation can.”

-- Susan Scott



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Protecting An Employer’s Business

Employee’s Duty of Loyalty to Employer

Uniform Trade Secrets Act

Non-Compete, Non-Solicit, and Confidentiality Agreements



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Generally, every employee owes a duty of loyalty to their employer during employment.

This duty of loyalty includes a duty to not compete with his/her employer while employed.



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In Virginia, employees (even officers and directors) can generally make plans to resign and subsequently compete with their employer without breaching their duty of loyalty.

But how far can they go in “making plans”?



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Employees cannot:

- Use employer’s trade secrets for own benefit

- Misuse employer’s confidential information

- Usurp corporate opportunity

- Tortiously interfere with a contract or business expectancy

- Engage in common law or statutory conspiracy to harm another in his trade or business



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Directors and Officers

Pursuant to Virginia law, directors and officers are suppose to exercise good faith business judgment as to the best interest of the corporation.



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Virginia Uniform Trade Secrets Act

Uniform Model Act - 1979

Virginia enacted its version of the Uniform Trade Secret Act in 1986.

Maryland and DC have also enacted versions of UTSA.



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Misappropriation of Trade Secrets:

1.Information is a “trade secret”

2.That has been misappropriated

3.Which has independent economic value

4.Is not generally known

5.Is not readily ascertainable; and

6.Has been the subject of reasonable methods to maintain secrecy



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Trade secret is defined as:

“information, including but not limited to, a formula, pattern, compilation, program, device, method, technique or process, ….”



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Examples of protected trade secrets:

customer/client/patient lists

pricing information

business strategies

sales techniques

methods of doing business

computer software



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Misappropriation means:

1)Acquisition by a person who knows or has reason to know that the trade secret was acquired by improper means; or



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2. Disclosure or use of a trade secret by a person who a) Used improper means to acquire knowledge of TS; or

b) Knew or had reason to know that his knowledge of the TS was:i) Obtained from a person who used improper means to acquire it;

ii) Acquired under circumstances that required a duty to maintain its secrecy;

iii) Derived from a person who owed a duty to the person seeking to maintain its secrecy; or

iv) Acquired by accident or mistake.



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Trade Secret must not be generally known to those in the relevant industry or trade.



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Trade Secret is not readily ascertainable by proper means.

If obtain information by proper means, the information cannot be a trade secret. For example, information obtained from telephone book, industry or business sources, published patent, reverse engineering, or observing the product or service on public use or display is not obtained by improper means.



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The trade secret has been subject to reasonable efforts to protect its secrecy.



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Remedies for Misappropriation of Trade Secrets

-Injunctive relief

-Damages - Actual loss caused by the misappropriation; and- Unjust enrichment; or- Reasonable royalties

- If willful and malicious- Punitive damages (capped at $350,000)- Recovery of attorneys’ fees



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VUTSA does not affect

-Contractual remedies agreed upon by the parties

-Other civil or criminal remedies not based upon misappropriation of trade secrets



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Non-Compete, Non-Solicit and Confidentiality Agreements

Businesses use contracts between the business and its employees to protect its confidential and proprietary information.

It’s a contract – must meet minimum requirements for a contract

Is continued employment sufficient consideration?



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Confidentiality agreements can be another tool for employers to protect their information and data even if it does not meet all requirements for a trade secret to be protected under VUTSA.



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Non-Compete and Non-Solicit Agreements are special kinds of contracts – they are considered restraints on trade (limit freedom of employees to move to different jobs or start own business which is generally favored in free market systems).

US courts do not favor them. Many foreign countries and some states find them unenforceable all together. In US, depends on law of each state.



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Covenant not to compete will only be enforced if:

1)The restraint is no greater than is necessary to protect the employer in legitimate business interest;

2)The restraint is not unduly harsh and oppressive in curtailing employee’s legitimate efforts to earn a living; and

3)The restraint is reasonable from a public policy standpoint.



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A covenant not to compete must be reasonably limited as to:

1)length of time the employee cannot compete after end of employment;

2)The geographical territory in which cannot compete;

3)Prohibit only activities which would compete with or adversely affect the employer’s legitimate business interests.



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Covenants to not solicit

- customers/clients/patients; and/or

- employees/vendors/consultants

are considered less restrictive than non-compete provisions.

Court may give non-solicit provisions slightly more leeway.



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Enforcement against senior executives v. lower level employees

Enforcement when agreement entered into from the sale of a business v. employer/employee situation

Enforcement when agreement entered into in teaming/subcontractor relationship



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Courts’ interpretation and enforcement of these agreements over the last 20 years.

2012 Virginia Supreme Court decision in Preferred Systems Solutions, Inc. v. GP Consulting, LLC– some good news for a change



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“Blue-penciling” – depends on state

Forum selection clauses

Enforcement against new employer

- Former employer’s claim for tortious interference with a contract or an alleged conspiracy to breach a contract or harm a business



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Let’s Play a Game to Practice What We Know

YOU BE THE JUDGE!



CONTACT INFORMATION

Kristina Keech Spitler, Esq.

Vanderpool, Frostick & Nishanian, PC.

[email protected]

9200 Church Street, Suite 400 700 Princess Anne Street

Manassas, Virginia 20110 Fredericksburg, Virginia 22405

(703) 369-4738 (540) 479-4275

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Documents

Protecting Your Confidential and Proprietary Information Employee’s Duty of Loyalty, Trade Secrets, Non-Compete Non-Solicit and Confidentiality Agreements