A few weeks ago, MMM featured an article regarding the recent trend in state legislatures to pass statutes defining or limiting the use of covenants not to compete. Careful drafting of these important tools that businesses are increasingly turning to protect their "competitive edge" is becoming more difficult. Yet if done carefully, and with knowledge of this area of law, a company can have a court protect its' valuable "know-how" from slipping away to its competitors. We set out a quiz this week on this topic to highlight some of the important issues, and potential pitfalls in drafting these important covenants. Some questions are a repeat from past quizzes and some are new reflecting recent developments.
TRUE OR FALSE:
1. 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.
2. The 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.
3. It is permissible for a company to terminate an employee for refusing to sign a covenant not to compete.
4. 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.
5. California and New York both have laws that largely forbids the use of covenants not to compete in the private sector workplace.
6. Wisconsin and Arizona both have laws that largely restrict the use of covenants not to compete.
7. It is permissible to have all of your employees sign a covenant not to compete.
8. Massachusetts and Illinois have passed legislation in recent years limiting the application of covenants to employees above certain wage levels.
9. 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.
10. In order that 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".
If you need or want to discuss the answers to one or more of these questions or assistance on this topic generally, please drop us a line or give us a call.
