Eight Steps to Protect Your Client’s Competitive Intelligence During Key Employee Departures

1. Demand Adherence to Restrictive Covenants in Writing

An employer should provide key former employees with a written demand for adherence to applicable restrictive covenants. This demand can take several different forms depending on the imminence of the risk. It may be advantageous for counsel to make the initial demand to emphasize the seriousness of the situation to the departing employee. Alternatively, counsel can advise in the background while the employer communicates directly with the employee. An immediate written demand has several benefits:

• It prevents the employee from later claiming he or she was unaware of the covenants or did not think the employer was serious about enforcement.

• It gives the employer the chance to articulate activity that violates the covenants. It may be that the employee is receiving poor advice from a new employer or independently has an erroneous belief that contemplated plans will not violate the covenants. Articulating actions that will trigger enforcement proceedings may deter the employee’s violation or at least plant a seed of doubt in an otherwise emboldened employee.

• If enforcement proceedings are ultimately necessary, a letter memorializing the employer’s position at the outset can form the basis for a court to conclude the employee’s subsequent violations were knowing and intentional.

2. Request an Exit Interview

A key employee planning to violate restrictive covenants may not be willing to attend an exit interview. However, some might. If an employee agrees to attend, prepare talking points and questions that serve the following goals:

• Probe the employee about his or her new employer, reasons for leaving, and plans to compete. An admission that the employee plans to violate a restrictive covenant is compelling evidence in court and can assist an employer that needs to seek a restraining order to prevent unfair competition. If an employee lies about plans to violate a restrictive covenant, the lie itself can bolster the employer’s argument that court intervention is necessary.

• An exit interview is an optimal time to deliver the written demand for compliance discussed above, because it may trigger dialogue about the restrictive covenants and the employer’s expectations.

• Even if the employee declines the exit interview or does not respond, those actions are additional facts that may bolster the employer’s narrative and inform how the employer proceeds.

3. Halt the Destruction of Information and Property

The preservation of information and property is critical. On day one, the employer should ensure that all employer property used by, or in the possession of, the departing employee is retained, and care should be taken not to alter valuable electronic data. In particular, the employer must ensure that employee laptops and other electronic equipment are not scrubbed or repurposed for other employees until a preservation plan has been developed.

4. Prepare Remaining Employees to Ask about Violations

Client-facing employees are often the first to know if a former employee violates a restrictive covenant. Those same employees are also the most likely to be potential witnesses for the employer if legal enforcement proceedings are required. For that reason, employers should equip those employees with talking points that support key legal theories and an action plan for conveying information to company leadership.

5. Protect Intellectual Property and Intangible Assets

Consider any involvement the transitioning employee has with intellectual property and other intangible assets. If signatures or documentation are required—for example, for pending patent applications or other intellectual property filings—the employer will have an easier time having that paperwork completed by a departing employee at or near the time of exit. If the employee has access to customer lists, software, or content hosted by third parties, the employer should terminate such access and change passwords, as applicable. Employers should similarly ensure that they have control of any social media accounts, domain name registrations, and website content.

6. Track Losses

Establishing a plan to track losses is critical, and daily tracking is optimal. A court deciding an enforcement proceeding will want to understand current losses and future risk, and the employer should be ready to respond to that fundamental question. It is far easier to track potential losses at the outset than to account for losses retroactively when time is of the essence. Moreover, the rapidity of loss can itself evidence improper competitive behavior.

7. Consider an E-Forensic Investigation

An employer should consider an e-forensic investigation, which should be managed by outside counsel to protect information the employer may want to deem privileged. While the ways an employee can steal competitive intelligence is limited only by the employee’s creativity, evidence of such theft is often available in the electronic record. For that reason, early use of e-forensics is often worth the investment and can lead to persuasive evidence of misappropriation if it has occurred.

8. Weigh Litigation Options

Litigation is often an appropriate step when a key employee violates restrictive covenants. But employers need to decide early in the process whether to pursue a suit for damages only or pursue an early motion for an emergency temporary restraining order or injunction. A damages-only suit may have helpful deterrent effect, is less costly, and allows time to negotiate a resolution. But if an employer will be irreparably harmed without an expedited court order requiring the employee to stop improper behavior or return stolen data, an emergency motion for a restraining order may be necessary. Discovery permissible through litigation can also be a valuable tool because it allows an employer to investigate an employee’s competitive plans rather than relying on voluntary disclosures or unaided investigation of an employee’s surreptitious conduct.

Conclusion

The departure of a key employee is always upsetting, but planning ahead of time how to handle such departures, and taking the appropriate steps once such departures occur, can make all the difference.

Maria L. Kreiter, Margaret R. Kurlinski, and Erin (Maggie) M. Cook are shareholders with Godfrey & Kahn in Milwaukee, Wisconsin. Jennifer L. Gregor is a shareholder with the firm in Madison, Wisconsin. Rebeca M. López is an associate with the firm in Milwaukee, Wisconsin.

_{Copyright © 2020, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).}