Posts Tagged Confidentiality
Right from the Start – Non Solicitation Agreements
Posted by Christine Branstad in Business Law, Corperations, Employees, Non-Solicitation Agreements, Starting a Business on January 6th, 2010
Image by lumaxart via Flickr
My previous post reviewed non-competition agreements to keep employees from walking away with the kitchen sink – trade secrets, client lists and knowhow. This post focuses on Non-Solicitation Agreements, a more narrow method of keeping other companies from luring employees or clients away. The next post will address non-disclosure agreements.
In the second year of your burgeoning IT business, you have 5 employees. You land a project that requires a temporary workforce of 10 employees. A staffing company offers to provide workers, but a clause in the contract prohibits you from soliciting any of the temporary staff for 2 years. Should you sign?
In its third year, your company competes for a project requiring onsite work. You plan to embed your team, but are concerned that you risk losing the contract if you muddy negotiations with a requirement that the client not solicit your employees. How do you address the issue?
A non-solicitation clause is a normative approach to both situations. Non-solicitation clauses are a common method for setting boundaries with staffing companies, consultants, and trainers.
A non-solicitation agreement with another company may prohibit luring employees. The strictest agreements prohibit all contact, which has led to litigation about whether purely social interaction violates the clause. Additionally, employees may be prohibited from hiring other employees away.
Other non-solicitation agreements prohibit luring away customers. Companies have agreed that, as employees move between companies, each will not solicit the clients previously serviced by the employee for the other company. In the alternative, the non-solicitation agreements may be directly between employer and employee (often in lieu of a non-competition agreement). Those agreements may be narrow (e.g. employee may not solicit clients for whom employee was account manager) or broad (e.g. employee may not solicit any client on company’s client list). The more broad the provision, the more likely it will be scrutinized by the court.
Agreements to limit competition, disclosure or solicitation are, by their nature, restrictions on trade. Iowa courts have long held that any restraint of trade is strictly construed against the one seeking to restrain another from pursuing employment or business pursuits. As one example, Iowa Courts specifically distinguished “selling” and “solicitation” based on who initiated the transaction.
As you consider non-solicitations agreements, consider:
- Is non solicitation good for your business?
- Is it good for the industry in general?
- What time limit should apply?
- What geographic limit should apply?
- Is the agreement limited to a certain type of client?
- Is it limited to a certain type of employee?
- Will it affect your ability to recruit and retain employees?
- Is it fair?
Right from the Start – Non-Disclosure Agreements
Posted by Christine Branstad in Business Law, Corperations, Intellectual Property, Non-Disclosure Agreements, Starting a Business on December 13th, 2009
Image via Wikipedia
Non-Disclosure Agreements (also called NDAs, Confidentiality Agreements or Secrecy Agreements) have broad use in business.
The “form” NDA is a business myth. Each is designed for a purpose; the provision to protect a trade secret in a severance agreement bears little resemblance to one used when exploring a joint venture. An intellectual property attorney protecting your patent-pending machine in “pitches” to manufacturers uses a significantly different NDA than an employment law attorney protecting your client list from “walking away” with current employees.
All non-disclosure agreements should be:
- Realistic: Protecting information should not involve parties agreeing to lock themselves in windowless rooms while dealing with each other. If you are dealing with an unscrupulous person with no assets, an NDA may not protect you.
- Tailored enough. If collaborating, do you expect the other party to disclose information to contractors or employees?
- Broad enough. If you provide a plant tour, is information discovered in the plant tour protected?
- Specific enough. If one party drops out, may the other use information obtained? Is there a specific penalty for disclosure? Is there a penalty for accidental disclosure (e-mail intercepted by hacker, cleaning service theft, et cetera)? Does the NDA adhere to the laws of the state where it is written and to the laws of states where each party does business?
The Iowa Supreme Court sets out a test to determine whether a “nondisclosure-confidential agreement” is enforceable. The courts look at whether the restriction is: “(1) reasonably necessary for the protection of the employer’s business; (2) unreasonably restrictive of the employee’s rights; and (3) prejudicial to the public interest.”
Among ethical business partners, an NDA will set boundaries of conduct and mutual expectations. A well-worded agreement may save future headaches.
But even the best NDA will not make an unethical employee act ethically. In the event of unethical behavior, a properly drafted NDA may be a corporate lifesaver.
