Non-Compete Covenants and Trade Secrets

Legal Compliance Resource
October 11, 2012 — 939 views  

Non-Compete Covenants and Trade Secrets

Non-compete clauses, also called covenants not to compete, are useful tools that allow a business owner to prevent an employee from pursuing employment with a competing business. Covenants not to compete are generally found in employment contracts and are governed by contract law. Although the laws vary from state to state, overly restrictive clauses are usually unenforceable. 

State laws recognize the right of citizens to be able to find rewarding employment within their field of expertise. Therefore, covenants not to compete are only enforceable to the extent necessary to protect the employer’s interests. The non-compete clause must protect a legitimate business interest. Appropriate restrictions often include geographical limitations and a limited time period during which the employee cannot work for a competitor. 

Non-Compete Clauses Protect a Company’s Trade Secrets

A non-compete clause prevents an employee from sharing trade secrets with a competing business. Trade secrets are those techniques, products or formulas that are thought to give a business an advantage over its competitors. They can also include customer lists. In order for information to be classified as a trade secret, it must provide the owner with an economic benefit. Trade secrets are handled by a business in a way that would provide a reasonable expectation of privacy, preventing competitors or members of the public from obtaining that knowledge. 

Trade secrets are not protected under intellectual property law like trademarks, patents or copyrights. Keeping a trade secret depends on company policy and their efforts to protect the information from the public. Trade secrets are protected as long as the company holds the information confidential. If a trade secret becomes publicly available, it is no longer a secret. However, because trade secrets are not governed by intellectual property law, they can potentially last indefinitely, as long as the information is kept confidential. However, once the trade secret is exposed, it is difficult to regain its status as a trade secret.

Legal Remedies

To recover damages from disclosed trade secrets, a business owner must prove that the information was valuable, confidential, and that the information was obtained through improper methods. Once a trade secret has been misappropriated, the business owner can seek injunctive relief. An injunction prevents the trade secrets from being misused and allows the owner to preserve their confidentiality. If a business owner is able to show that the company suffered economic damage due to the disclosure of the trade secret, a court may order the defendant to pay money damages.

 

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