Mitigating the Risks of Hiring an Employee with a Delaware Non-Compete

This article was original published on the “Delaware Non-Compete Law Blog

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The use of employee covenants not to compete – once restricted to salespeople and high-level management – has continued to expand into the ranks of ordinary employees. A recent survey suggests that as many as one in five employees have some form of agreement placing restrictions on their post-employment activities.

The growing prevalence of such agreements – and their potential restraint on job mobility and economic growth – has led many states to enact laws or propose legislation that would limit or restrict their use. No such laws currently exist in Delaware, but its courts have developed a “reasonableness” test to determine whether covenants not to compete will be enforced.  This test includes whether the restrictions are narrowly tailored to protect some legitimate economic interest, the scope of the restrictions, the former employee’s need to earn a living, and the public’s interest in having open competition in the marketplace.

The broader use of covenants not to compete has also led to more lawsuits. Frequently, these lawsuits are brought not only against the former employee, but against the new employer as well.  Such claims typically allege that the new employer hired the employee despite its knowledge of the noncompete and/or allowed or encouraged the employee to disclose and use the former employer’s trade secrets.

Given the significant legal costs and potential liability, all businesses should consider implementing the following steps before recruiting and retaining a new hire prospect.

Due Diligence in the Application Stage

The recruitment process should include questions about the employee’s previous employers and whether the employee is (or was) subject to any agreements, letters, or policies that placed restrictions on post-employment activities. These restrictions include limitations on where and who the employee could work for, who the employee could solicit or do business with, and what information the employee could use or disclose.

Job candidates also should be questioned about whether they possess any information or property of their past employers. Relevant inquires would include whether the employee retained any customer lists, marketing plans, intellectual property, and other potential trade secrets.   The types of property would include any computers, smartphones, or other data storage devices used for work-related activities for their past employers.

If the job candidate has no contractual restrictions on their post-employment activities, and does not possess any information or property belonging to previous employers, the candidate should be required to confirm such in writing prior to being hired.  If there are contractual restrictions or the new hire possesses information or property, employers should consider taking the next step.

Legal Assessment of the Noncompete

A vital step in preventing or mitigating the effects of a lawsuit to enforce a covenant not to compete is having legal counsel thoroughly review the situation.  First, a lawyer in this field can review the agreement to see if it is valid and whether there are any defenses to its enforcement.  In Delaware, for instance, some courts have found that an employer’s failure to pay certain compensation to the departing employee renders the noncompete unenforceable.  A lawyer also can determine whether the restrictions are overly broad or unreasonable – thus making the restrictions less likely to be enforced.

Even if the agreement is enforceable, legal counsel can help develop strategies to eliminate or reduce the prospects for a lawsuit.  For instance, an attorney can help craft a new hire’s job duties so that they do not violate the scope of the restrictions.  Legal also can help identify relevant information which may be useful in developing legal defenses to the covenant not to compete.  Such information might also be beneficial in the event the new employer decides to attempt to negotiate a deal with the former employer that would allow the employee to be hired.

Ensure Compliance Once the Employee is Hired

Employees who are hired with existing post-employment restrictions need to have clear, written instructions on what they can and cannot do.  In addition to any limitations on the new hire’s job duties and activities, it is essential that the new employer confirm with incoming employees that they have conducted a thorough search of any computers, hard drives, and email and cloud accounts for proprietary or confidential information belonging to past employers.  New hires also should be instructed that they are not to use or disclose any of their former employers’ trade secrets or confidential information.

Taking these steps will not completely eliminate the risk of a lawsuit by a former employer. However, it should significantly reduce the possibility of getting sued, and at the very least reduce the new employer’s potential liability should a claim be brought against it.

How to Apologize At Work

Humility is a virtue.  And, for most of us, it doesn’t come easily.  Particularly for those of us who want to be good at our jobs and to please to whom we report, owning up to a mistake at work can be a difficult task.  Management professor Robert Sutton offers advice about how to deliver a truly effective apology in his book, Good Boss, Bad Boss.  A recent article about Sutton’s advice summarizes it in three steps. I'm sorry_thumb

1. Own It

When you make a mistake at work, own your actions.  And own them completely.  Don’t combine your apology with an excuse.  Omit the word “but” from every apology.  For example:

Do:  “I apologize.  I sent the shipment sooner than I should have.”

Don’t:  “I apologize.  I thought you said to send it out yesterday.”

The second example sounds more like blame shifting than an apology.  Own up to the error fully.

2.  Don’t Overdo It

The apology should be commensurate with the mistake.  If you miss a big meeting, you should make your apology in person.  If you are 15 minutes late to the meeting, a less formal face-to-face is probably required.

3.  Offer a Solution

Employees who offer a solution for the problem that they’ve caused come out looking like problem solvers-a positive attribute in any workplace.  Can’t solve the problem?  Then explain what steps you’ve taken to try to solve it.  Just dumping the problem onto another person (particularly your boss) is not a good idea.  At the same time, make it clear that you intend to ensure that the problem not occur again.  Be clear that you won’t make the same mistake twice.

Are Your Employees Takers or Givers?

Employers should hire nice people.  That’s according to Adam Grant, author of Give and Take, anyway.  Grant writes that there are three types of employees: Takers, Matchers, and Givers.  And he advocates that employers should focus their hiring efforts on the last type-Givers are good, in other words. logo_from_dev

Takers, as you may have guessed, are people who put their own interests first.  Workplace bullies fall into this category, of course.  Matchers believe in quid pro quo-something for something.  Most employees fall into this category.  Then there are Givers.  Givers do nice things for others with no expectation of reciprocity, writes Seth Stevenson at Slate.com.

The problem with Givers, though, is that they can be too nice.  More often than not, they are so selfless, they spend too much time helping others and, as a result, are overlooked for promotions and other opportunities.

But that is not the case for all Givers, says Grant.  Some Givers make it all of the way to the top.  Takers and Matchers, on the other hand, get stuck in the middle.  Why? According to Grant, Givers will because people like them for all of those selfless acts.

So, in a sense, what Grant is saying is that success is a type of long-term popularity contest.  He is also saying that employers should hire nice people. What he doesn’t say is that employers should take care to help the Givers avoid getting run over or falling behind because of their commitment to kindness.

Have a nice day.

See also:

Is Your Boss a Bert or an Ernie?

Workplace Revenge and the Equal Opportunity Jerk

Management Monday: Quit Oversharing

Survey of Chancery Court Cases Shows Most Litigants Obtain Expedited Relief

A recent survey conducted by several of my colleagues demonstrates the speed in which litigants can obtain preliminary relief from the Court of Chancery. The survey included a sampling and analysis of approximately 200 cases between 2009 and 2011, in which the court ruled upon a motion for temporary restraining order or a motion for preliminary injunction. The results reflect the frequency and speed at which the court has granted injunctive relief in recent years:

  • For cases in which the court ruled on a motion for temporary restraining order, the court granted the motion 58 percent of the time. On average, the court granted the motion 7 days after its filing.
  • For cases in which the court ruled on a motion for preliminary injunction, the court granted the motion 30 percent of the time. On average, the court granted the motion 26 days after its filing.
  • The survey also looked at cases from the sample that involved trade secret claims and in which the court ruled on a motion for temporary restraining order or preliminary injunction. In those cases, the court granted the motion for temporary restraining order 88 percent of the time and granted the motion for preliminary injunction 75 percent of the time.

Based on these statistics, there seems to be little doubt that the court will order injunctive relief on an expedited basis in cases where circumstances require expedition, including those involving noncompete agreements and misappropriation of trade secret.

A copy of the full article drafted by my colleagues and published by BNA can be obtained on the Young Conaway Stargatt & Taylor website.

Images for Labor Day

Happy Labor Day, dear readers. In observance of this important national holiday, may I suggest having a look at a new set at the Library of Congress, called Child Labor & Lewis Hine. The set showcases the works of investigative photographer Lewis Hine, who portrayed working and living conditions of children in the U.S. between 1908 and 1924.

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Hine’s photography was aimed to promote the “rights, awareness, dignity, well-being and education of children and youth as they relate to work and working.” You can read more about his work in the set description.

Gordon Ramsay, A Hotel, and a Hen House

Last night I watched the second episode of Gordon Ramsay’s new show, Hotel Hell. If you’re not familiar with the show, the basic premise is this: Gordon visits a failing hotel and, after lots of screaming and yelling, turns the owners into decent human beings who don’t treat their staff like savages and who see the error in their ways. The team all pulls together at the end and turns the place around. [FN 1]

Like the premiere episode last week, last night’s episode provided no shortage of “teaching moments.” [FN 2] The main lesson from last night’s show was this: leave the farming to the farmers. Just because you have enough change in your pocket to buy a parcel of land does not mean that you should be operating a John Deere. The chickens will cluck at you from the hen house and the cows are likely to give you a swift kick with a hoof if you so much as think trying to milk one of them. Blue Hen of Delaware.jpg

In this case, there was no farm, no tractor, and no animals. It was worse–there was a lawyer with a hotel. A lawyer who had no experience whatsoever in the hospitality industry. But, one starry night, he was talking to his wife about what they should do to celebrate their wedding anniversary when he had the bright idea to buy the local landmark hotel instead of, let’s say, just booking a dinner reservation.

And, poof, just like that, the lawyer became a hotelier. Not a successful hotelier, mind you. But a hotelier nonetheless. Soon, Gordon was on site to save the day.

He nearly fell over when he learned that Mr. and Mrs. Hotel Owners had no experience in any aspect of hotel or restaurant management. He told them, or, technically, screamed at them, that they ought to just sell the place; that they were not cut out for this business. As it turns out, it seems that Gordon may have been right, the post-script following the show indicated that the bank foreclosed on the property, despite Gordon’s valiant efforts. So what’s the “teaching moment” from this low-grade disaster?

Don’t pretend to be something that you’re not.

If you find yourself responsible for a project in a subject matter far beyond your scope of knowledge, admit it. And, for the love of Ramsay, don’t try to boss around the real subject-matter experts. If you do, you’ll be the laughing stock of the hen house. [FN 3]

***Footnotes***

[FN1] Don’t misread my description as a negative review–I heart Gordon Ramsay. If it’s his show, it’s great, and that’s that.

[FN 2] A “teaching moment,” for those who many not know, is a major screw-up that, 15 years ago, would have resulted in taunting and teasing but, today, prompts insightful discussion by those who did not cause said screw-up.

[FN 3] In Delaware, you’d have Blue Hens in your proverbial hen house, as it’s the Delaware State Bird.

Is Your Boss a Bert or an Ernie?

Navigating office politics can be difficult. Even in workplaces without backstabbers and manipulators, we all have days when it can be, well, shall we say, difficult to play well in the sandbox with others.

The best piece of advice I ever received when it comes to getting along with others is to remember that not everyone thinks like I do. Of course, I know that this is true. But even the obvious can be easily forgotten. There is a novel way to keep it mind, though.

If you want to manage your workplace (or other) relationships better, try starting with a personality analysis. And Muppet Theory may be the analysis you’ve been looking for. Muppet Theory, in short, proffers that everyone can be classified as either a Chaos Muppet or an Order Muppet.

As the creator of the Theory, Dahlia Litwick, writes on Slate:

Chaos Muppets are out-of-control, emotional, volatile. They tend toward the blue and fuzzy. They make their way through life in a swirling maelstrom of food crumbs, small flaming objects, and the letter C. Cookie Monster, Ernie, Grover, Gonzo, Dr. Bunsen Honeydew and–paradigmatically–Animal, are all Chaos Muppets. So, I must tell you, is Justice Stephen Breyer.
bertandernie200x200.jpg

Order Muppets–and I’m thinking about Bert, Scooter, Sam the Eagle, Kermit the Frog, and the blue guy who is perennially harassed by Grover at restaurants (the Order Muppet Everyman)–tend to be neurotic, highly regimented, averse to surprises and may sport monstrously large eyebrows. They sometimes resent the responsibility of the world weighing on their felt shoulders, but they secretly revel in the knowledge that they keep the show running. Your first grade teacher was probably an Order Muppet. So is Chief Justice John Roberts.

Litwick goes on to explain that you can determine which type of Muppet your office mate is by the workspace that he or she keeps. She likens a Chaos Muppet’s desk to Oscar’s garbage can. But Chaos Muppets aren’t all bad, she reminds us–too many Order Muppets means no cookies for anyone.

You may find that the quirky behavior of that coworker who drives you buggy is a little less quirky when think of him as an Ernie instead of a Bert. Go ahead and try it. Then have a cookie.

And, in case you are wondering why the reference to two Supreme Court justices, Litwick writes about the law and courts for Slate, which just confirms for me that she’s totally awesome, as if her Muppet Theory didn’t do that already.