Legal document Non-Compete Agreement on paper close up

Non-Compete Agreements and Trade Secrets

Law Offices of David H. Schwartz, INC March 18, 2024

In any business environment, protecting proprietary information and maintaining a competitive edge is essential to success.

Two critical tools in a company's legal arsenal are non-compete agreements and trade secrets. Understanding these elements and how they interplay empowers businesses to safeguard their interests and help employees navigate their career paths post-employment. 

What Is a Non-Compete Agreement? 

A non-compete agreement is a legal contract that acts as a protective barrier for businesses to ensure that their sensitive information is not used as a tool or resource for their competition.

These contracts restrict former employees from joining or starting a competing business within a certain time frame and geographic scope after their employment ends. The essence of a non-compete agreement lies in its ability to protect an employer's business interests, including its customer relationships, confidential information, and, significantly, its trade secrets.

The enforcement of these agreements varies based on the jurisdiction of the company and employee, with some regions imposing stringent limits on their scope and duration. Non-compete agreements should strike a balance between protecting business interests and not unduly hindering a former employee's right to work. 

What Are Trade Secrets? 

Trade secrets encompass a broad range of confidential business information that provides a company with a competitive advantage.

This can include anything from formulas, practices, designs, instruments, patterns, or processes that remain unknown to the public. The inherent value of trade secrets lies in their exclusivity and confidentiality, which, when compromised, can significantly impact a business's market position and profitability.

The protection of trade secrets is a matter of internal security within a company. While companies invest heavily in safeguarding their trade secrets through various means, legal protections offer recourse in instances where company secrets are misused. The legal framework surrounding trade secrets aims to prevent unauthorized use or disclosure, thereby preserving a company's competitive advantage. 

The Intersection of Non-Compete Agreements and Trade Secrets 

Non-compete agreements and trade secrets are inherently interconnected. Non-compete agreements serve as a legal mechanism to prevent the potential disclosure of trade secrets by former employees to competitors. By restricting a former employee's ability to work in competing businesses, these agreements help mitigate the risk of trade secret misappropriation.

This symbiotic relationship speaks to the importance of carefully drafted non-compete agreements that are specifically tailored to protect a company’s unique trade secrets.

Non-compete agreements are typically confidential and are not made available to the public. However, in some instances, non-compete agreements may need to be disclosed to certain parties, such as a court or potential employer, for legal reasons. 

How Long Does a Non-Compete Agreement Last? 

The duration of a non-compete agreement varies depending on the jurisdiction, industry, and specific language included in the contract. Generally, these agreements range from one to five years but can be longer or shorter depending on the job and duties performed.

In California, non–compete agreements unenforceable regardless of where and when the contract was signed. However, other states may have specific restrictions on how long a non-compete agreement can last, so it is essential to research local laws before drafting or signing one. 

What Voids a Non-Compete Agreement? 

Several factors can invalidate a non-compete agreement, rendering it unenforceable. These include:

  • Lack of Consideration: A non-compete agreement must be supported by adequate consideration. When requesting an existing employee to sign a non-compete agreement, it is customary to offer compensation, such as a raise, bonus, or promotion, in return for their agreement. Failure to provide such compensation could render the agreement unenforceable. 

  • Unreasonable Restrictions: Non-compete agreements must strike a balance between protecting the employer's business interests and an employee’s right to make a living. Courts may deem non-compete agreements unenforceable if they have overly broad restrictions. 

  • Public Policy Considerations: Non-compete agreements that violate public policy, such as restricting employees from working in their chosen field or industry, will not be enforced. 

Is There a Way Around a Non-Compete Agreement? 

Employees who sign a non-compete agreement may feel limited in their career options, especially if they are bound by the contract's restrictions for an extended period. However, there are ways to get around a non-compete agreement, such as: 

  • Negotiating with the Employer: It is always worth discussing potential modifications or limitations to a non-compete agreement with an employer. This could involve reducing the duration or geographic scope of the agreement to allow for greater career flexibility. 

  • Seeking Legal Advice: If there are concerns about the enforcement of a non-compete agreement, seeking legal advice from an attorney, such as the Law Offices of David H. Schwartz, INC, can help clarify any potential loopholes or challenges that may be present. 

  • Challenging the Agreement in Court: In some cases, an employee may challenge the enforcement of a non-compete agreement in court if it is deemed overly restrictive or lacks adequate consideration. 

What Should You Do If a Non-Compete Agreement Was Broken and Your Trade Secrets Shared? 

If a former employee breaches their non-compete agreement and shares a company's trade secrets, companies can take action against them to mitigate any potential damage to their business interests. If you suspect that a former employee has broken a non-compete agreement, consider the following actions:

  1. Review the Agreement: Verify the specific terms and conditions of the non-compete agreement to ensure that a breach has occurred. 

  1. Gather Evidence: Collect any evidence that supports the breach of the agreement, such as communications, social media posts, or employment records from the new employer. 

  1. Consult with Legal Counsel: Seek advice from a legal professional experienced in employment or intellectual property law to understand your options and the potential for legal recourse. 

  1. Issue a Cease and Desist Letter: Have your attorney draft a cease and desist letter to the former employee, demanding that they stop any activities violating the agreement. 

  1. Consider Legal Action: If necessary, prepare to take legal action against the former employee to enforce the non-compete agreement and seek damages for any loss incurred. 

  1. Review and Strengthen Internal Protocols: Evaluate and enhance your internal protocols regarding confidential information to prevent similar breaches in the future.

Timely and decisive action is key to effectively handling a breach of a non-compete agreement. Each step should be carried out with due diligence and in consultation with legal professionals to protect your business interests adequately. 

Legal Representation You Can Trust 

As the global economy becomes more interconnected and industries become increasingly competitive, the use of non-compete agreements and the protection of trade secrets remain critical tools in a business's arsenal.

If you're facing challenges related to non-compete agreements or have a company that is grappling with protecting its competitive advantage, reach out to The Law Offices of David H. Schwartz, INC.

With extensive experience in litigating trade secret misappropriation claims and a deep understanding of non-compete agreements, they provide businesses throughout the San Francisco Bay Area with the legal knowledge and representation they need to protect their best interests.