Many businesses have turned to covenants not to compete to protect their "competitive edge." However drafting these covenants can be a daunting task. Yet if done carefully a company can have a court protect its' valuable "know-how" from slipping away to its competitors.
A couple of years ago we set out a quiz on this topic to highlight some of the important issues, and potential pitfalls in drafting these important covenants. We are featuring this quiz again because today's tight labor market is increasing the focus on these means to protect your competitive edge:
1. Th
e drafter of the covenant can choose which state's law to apply to the agreement and this choice will be honored so long as the state chosen is the state the drafter resides in.
2. It is permissible for a company to terminate an employee for refusing to sign a covenant not to compete.
3. If you decide to have an incumbent employee sign a covenant not to compete, it is not necessary to give that employee additional consideration for his or her execution of the agreement.
4. It is permissible to refuse to hire an individual because he or she has signed a covenant not to compete with another employer.
5.
It is permissible to refuse to hire an individual because he or she refuses to sign a covenant not to compete that has previously been enforced against other employees.
6. It is permissible to have all of your employees sign a covenant not to compete.
7. Some states, most notably California, are extremely favorable to the enforcement of covenants not to compete.
8.
Sometimes it is advisable to "race to the courthouse" in one state as opposed to another to secure an injunction enforcing a covenant against an employee who has left your company.
9. If you do not have a covenant not to compete agreed to and executed by an employee who leaves your company and takes trade secrets with him or her, you are left without a remedy.
10. In order for a covenant to compete to be enforceable the employee against whom it is to be enforced must be deemed to have possessed a "protectable interest".
We will feature the answers to these questions in next week's MMM.
