It is axiomatic that customer relations is critical to business success. No matter what a business’s revenues or number of employees, long term success of a business dictates a satisfied customer base. One way to minimize customer dissatisfaction and erosion is to protect the customer base from predatory actions of current or former employees. Employers historically have entered into agreements with employees limiting their ability to compete with the employer, solicit the employer’s employees, and use employer’s data, information, proprietary processes and trade secrets.
Missouri courts and the Legislature have long recognized the importance of protection of key employer assets such as trade secrets and customer base (Missouri also has a computer tampering law). The litmus test is always the reasonableness of the agreement. Courts do not like restraints of trade. Our society is built on commerce and its free flow. However, an employer may protect its interests by entering into a special written agreement with employees limiting their future actions that could be adverse to the interests of the employer. So generally, a covenant not to compete (non-compete) will be enforceable if properly drafted and applied. Similarly, an employee restriction on disseminating employer information (confidentiality or non disclosure) is also enforceable as long as applied with reason.
So which employers need non-disclosures and non-competes? I would argue that virtually all need some form of protection. The need to protect must be balanced though against the importance of employee trust and satisfaction.
Many lawyers will advise to focus only on the most highly compensated, but an employee at any level may have contact with proprietary information or key customers. As a result, it is fact specific and one must naturally use a common sense approach. Some employers will place a covenant not to compete and non- solicit employees and customers, confidentiality and even invention rights in an employment manual as a blanket approach.
Other employers will require individual agreements for each affected employee. The best time to enter into such employer/employee agreements is at the very beginning of the relationship. Some states require this, stating consideration must exchange to make such an agreement enforceable and this can only occur at the formation of the employment relationship. If not done at the formation, then those states will require a bonus payment to the employee to make the agreement enforceable. Still other employers will wait until the employment relationship terminates and then attempt to plug any holes with a severance agreement coupled of course with a severance payment.
I believe the best practice is to determine in advance what is to be protected and then enter into an agreement speaking to those concerns with the employee at the time the relationship begins.
These are necessary employer tools to maintain success with one’s customers. It is a legally complex area though that requires the employer’s lawyer. Missouri Statute 431.202, Whelan v. Kennebrew, and other cases should be reviewed prior to drafting. The Missouri Supreme Court decided the Kennebrew case in 2012. It continues Missouri’s “blue pencil” doctrine which is a common law concept allowing a judge to reform a defective non-compete to make it enforceable. Some of the key points of that decision are quoted as follows:
“A non-compete agreement must be narrowly tailored temporally and geographically and must seek to protect legitimate employer interests beyond mere competition by a former employee. Accordingly, a non-compete agreement is enforceable ‘only to the extent that the restrictions protect the employer’s trade secrets or customer contacts’… The employer has the burden to prove that the non-compete agreement protects its legitimate interests in trade secrets or customer contacts and that the agreement is reasonable as to time and geographic space….”
‘Protection of the employer, not punishment of the employee, is the essence of the law’….”
Non-competes and non-disclosures are important employer tools that should be re-visited periodically by every employer. Lawyer involvement early in that process is recommended.