An Easy and Effective Way for Employers to Protect Themselves
Imagine this scenario: Your company is in Arizona and one of your sales representatives goes to work for a competitor. He knows all about your pricing and bidding practices, so he helps your competitor undercut your prices. He then calls all of your customers and offers discounted pricing while telling them about the many flaws in your organization. After successfully soliciting many of your customers, he convinces your key employees to come work with him.
What options, if any, do you have? Well, the answer depends on whether the employee signed an agreement prohibiting him from doing these things. If so, you have several powerful tools you can use to force the employee to immediately stop what he is doing. If not, you may be out of luck. In Arizona, this is because current employees have a fiduciary duty and a duty of loyalty not to work for a competitor or solicit your employees or customers. But, when the employment relationship terminates, the employee is no longer bound by these restrictions unless they signed an agreement that specifically prohibits them from doing so.
We advise that Arizona employers require every key employee to sign an employment agreement upon hire that restricts what they can do after their employment has terminated. An employment agreement can contain many provisions, but here are the four most common types of restrictive covenants that can be included in an employment agreement:
- A non-solicitation of customers clause that prohibits the departing employee from soliciting or even contacting any of your customers or clients;
- A non-solicitation of employee clause that prohibits the departing employee from soliciting your current employees to go work for another organization. It can be devastating when a large group of employees all leave at the same time, especially when those employees all go to work for one of your competitors;
- A confidentiality provision, which prohibits the employee from disclosing any “confidential information” to anyone. These agreements must carefully define what constitutes “confidential information.” An agreement that states all of the information the employee learns during their employment is confidential would likely not be enforced because it is overly broad. Employers should think carefully about what kind of information they consider to be confidential and then work with counsel to carefully describe that information in the employment agreement.
- A covenant not to compete, which prohibits the employee from working for a competitor or starting their own competitive business for a limited time in a specified location. Courts subject these kinds of agreements to strict scrutiny because they can prevent the employee from being able to work in their chosen profession, but they can be enforceable if carefully drafted.
If an experienced employment attorney has done their job correctly in drafting these kinds of provisions, then the employer can seek an injunction that immediately stops the employee from violating the terms of the agreement. Employers may also seek any damages they incurred as a result of the breach of the employment agreement, possibly including liquidated damages and attorney’s fees. Employers may also be able to sue their competitor for knowingly and intentionally hiring an employee in violation of a non-compete agreement.
If a departing employee has not signed any agreement, the employer may not have any remedies when faced with the situation above. Employers should still seek counsel because they may have other claims, including claims for defamation, intentional interference with contract, breach of an implied duty of confidentiality, or theft of trade secrets. But things are always much simpler and easier when there is a signed agreement that specifically prohibits the employee from engaging in the conduct at issue.
Employers should consult an experienced employment attorney to discuss their specific situation because there is a lot to know and consider when drafting these agreements. If not done properly, the agreement will not be enforceable, and theywill be without any remedies.
About the Authors: Jeffrey Silence is an employment law attorney at the Phoenix law firm of Jaburg Wilk. He helps employers with challenging employment law issues including employee handbooks and policies. Kraig J. Marton is the chair of the employment law department and he assists employers to stay in compliance with the many state and federal employment laws.
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