Continuing difficult market conditions have forced many employers to re-evaluate their staffing requirements and to decide whether their businesses require a reduction in workforce.
Much of the disruption that may be caused by a reduction in force (or "RIF") may be anticipated by an employer's management team, who often will implement measures to mitigate the damage that may be caused to their businesses by a RIF.
However, the misappropriation or disclosure of intellectual property by departing employees -- whether it is done intentionally or accidentally -- may be unanticipated or overlooked by management. As a consequence, careful planning between management and legal counsel is necessary to protect and preserve the value of an employer's intellectual property assets in these times of transition.
This article discusses several measures attorneys may choose to recommend to employers conducting a RIF in order to protect and preserve the value of their businesses' intellectual property assets.
Non-Disclosure Agreements. Many businesses, and certainly most technology businesses, require their employees to execute non-disclosure agreements which protect the employer's intellectual property assets by reinforcing the employees' fiduciary obligations under California law with specific contractual obligations.
Non-disclosure agreements typically identify the employer's proprietary, confidential information, require the employee's acknowledgement of the value of preserving the secrecy of such information and obligate the employee to keep such information secret for an agreed period.
Management and legal counsel should review the employer's records to ensure that each departing employee has executed an acceptable non-disclosure agreement. If for any reason a departing employee has not executed a non-disclosure agreement, or has executed a non-disclosure agreement that is in some manner deficient or otherwise unacceptable, the employer should require the employee to execute an acceptable non-disclosure agreement ensuring the protection of the employer' intellectual property assets.
In order to be enforceable, a non-disclosure agreement must be supported by adequate consideration. Upon accepting employment, such consideration may be evidenced by the payment of compensation (or the promise to pay compensation) for the employee's services. Legal counsel should be alert that such consideration may be absent in a RIF and, if a non-disclosure agreement is executed on or after employment is terminated, ensure that severance pay or other consideration is acknowledged by, and paid to, the departing employee in exchange for his agreement not to disclose confidential information.
Non-Solicitation Agreements. Employers may also need to prevent a "brain drain" of personnel lured away by departing employees to new employers during a RIF, further eroding the employer's knowledge base and possibly compromising its intellectual property portfolio. This concern is typically addressed by employee non-solicitation agreements which, for an agreed period, prohibit ex-employees from soliciting their former co-workers to leave their jobs to work for a new employer.
Non-solicitation agreements also frequently address the protection of proprietary, confidential information which may be embodied in an employer's lists of its customers and suppliers, whether such lists are tangible or knowledge limited to the employer's personnel. In reliance on state trade secret law, customer and supplier non-solicitation agreements can be crafted to prevent departing employees from soliciting their former employer's customers and suppliers for business.
Return or Destruction of Property. Before each employee departs, the employer should ensure that he has returned all of the employer's property, including any property that contains the employer's confidential information (including originals and any copies that the employee may have made) and ensure that any employer data, electronic files or other information stored on the employee's personal or home computer has been removed or destroyed.
Access Codes, Passwords and Identification. The employer should also change or terminate any access codes, passwords or other identification which might enable the departing employee to access the employer's email, voicemail, telephone conference lines and computer systems or physically access the employer's facilities after the employee's last day of employment. The employer may also wish to notify customers, suppliers and others that the employee no longer works for it.
Employee Acknowledgement. In order to preserve a record of the measures the employer has required of departing employees as well as to confirm that each departing employee has fully complied with such measures, employers should require their departing employees to execute an acknowledgment certifying that all of their former employer's property has been returned or destroyed, and that they have read, understood and agree to be bound by their ongoing obligations under their non-disclosure and non-solicitation agreements.
Exit Interviews. Finally, the employer should conduct a formal exit interview with each departing employee. During the exit interview, the employer should ascertain the confidential information known to the departing employee and ensure that all tangible embodiments of that confidential information have been returned. The employee should also be reminded that his non-disclosure agreement requires that he maintain in confidence all secrets he learned during his employment. He should be cautioned not to violate this agreement directly by disclosure or indirectly by performing work for other employers or for himself that requires use of this confidential information.
Depending on the anticipated risk of disclosure and the magnitude of the possible damage that may result therefrom, the employer may wish to advise the employee that misappropriation or disclosure of any of the employer's confidential information may constitute a breach of his non-disclosure agreement for which he may be sued for monetary damages as well as a crime for which he may be fined or imprisoned.
The employer may also wish to advise the departing employee's new employer of the departing employee's non-disclosure and non-solicitation obligations, and that it expects the new employer to take whatever steps are necessary to prevent the direct or indirect disclosure of its confidential information by the former employee.
An exit interview may also be a very helpful tool in monitoring competition from departing employees. In an exit interview, the employer has an opportunity to determine whether the former employee has found work in the same industry with a competitor.
By following the measures set forth in this article, a business conducting a RIF may both reduce the risk that its intellectual property will be compromised by departing employees and, if the business' intellectual property is compromised, ensure that it is better positioned to enforce its intellectual proprietary rights through litigation if necessary.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
