Protecting Confidential Information and Business Relationships

By Thomas S. Cullen, published on April 2, 2000, in Savannah Morning News.

The labor force is becoming increasingly more mobile, and in today’s market, employees with access to confidential information and contact with customers often leave their jobs for other opportunities.

Given this environment, employers must find a way to protect confidential information and customer relationships and also retain valued employees. There are various pro-active steps that employers can take to limit unfair advantage to their competitors.

CONFIDENTIAL INFORMATION – Georgia law protects employers against the misappropriation or disclosure of any confidential information that constitutes a trade secret. Confidential information is a trade secret if it: (1) derives economic value from not being generally known to others, and (2) is the subject of “reasonable efforts” to maintain its secrecy.

Once any such information becomes available to an employer’s competitors through proper means, it loses its status as a trade secret.

If confidential information of an employer does not constitute a trade secret, it still may be protected. An employer may legitimately protect such information by requiring its employees to execute a confidentiality agreement.

A Georgia court will enforce a confidentiality agreement if it is reasonable with regard to the duration of the restriction (usually no more than two years) and the nature of the business interest which the employer seeks to protect.

CUSTOMERS AND EMPLOYEES – In addition, Georgia law allows an employer to protect its customer and employee relationships by requiring its employees to execute an agreement that contains non-competition, non-solicitation and/or non-recruitment covenants. These restrictive covenants prohibit the employee from engaging in certain activities during employment and for a specific period following the termination of employment.

A non-competition covenant prohibits an employee from competing with the employer; a non-solicitation covenant restricts an employee from soliciting the employer’s customers; a non-recruitment covenant forbids an employee from recruiting the employer’s other employees. The effectiveness of the restrictive covenants depends both on the employer’s ability to enforce the covenants and the employee’s perception of their enforceability.

Although some employers may be tempted to draft expansive restrictive covenants, overly broad and prohibitive covenants are vulnerable to attack. Non-competition, non-solicitation and non-recruitment covenants must be reasonably limited in terms of the (1) duration of the restriction, (2) scope of the conduct prohibited, and (3) geographical territory in which the employee is bound.

In determining whether a covenant is reasonable, a court will balance the interest the employer seeks to protect against the impact the covenant will have on the employee. The court will also give consideration to the employee’s right to earn a living and the employee’s ability to determine with certainty the post-employment activities that are being restricted. If a court determines that any portion of a restrictive covenant is unreasonable, the court will not enforce any part of the covenant.

PRACTICAL TIPS IN DRAFTING A COVENANT – An employer should carefully guard its confidential information and document the steps it takes to prevent its unauthorized disclosure. At a minimum, an employer should require all employees to sign a confidentiality agreement, which may also limit an employee’s ability to compete unfairly with the employer following the termination of employment.

If the goal of the employer is protecting its existing customer relationships, the employer should consider using a non-solicitation covenant instead of a non-competition covenant. Courts are more willing to enforce a non-solicitation covenant because the employer-customer relationship is clearly a protectible employer interest.

The business activities the employee is forbidden from participating in must relate to the employee’s job duties. A covenant, which specifies the type of activities it intends to restrict, will more likely be upheld. The phrases “or otherwise” or “in any capacity” following a list of prohibited activities is indefinite and may be struck down as unreasonable.

The term of the restrictive covenant should not exceed the time frame necessary for the employer to re-establish or solidify its relationships with customers. Although Georgia courts have upheld two-year non-competition and non-solicitation covenants, the court will review the facts of each case in making its determination.

A non-competition or non-solicitation covenant should restrict the activities of a former employee only in the geographic area in which the employee worked for the employer, not the geographic area in which the employer does business. In addition, the territory must be clearly specified on the date the covenant is executed and will not be enforced if the employee cannot determine the scope of the restriction until the employee’s termination.

A non-solicitation covenant does not have to contain a geographic limitation if it restricts an employee from soliciting only those customers that the employee had contact with while working for the employer.

All covenants must be concise and carefully tailored to the interests of the employer.

The views expressed in this article are solely those of the author. This article is intended for general informational purposes only. It is not to be regarded as legal advice. Persons with specific questions should seek advice of counsel.

Originally published in the Savannah Morning News on April 2, 2000.

ABOUT THE AUTHOR: Tom Cullen practices corporate law at HunterMaclean, a full-practice firm.