Non-compete litigation on the rise

Dampening entrepreneurship? Not in California.

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There was a great article in the Wall Street Journal recently stating that non-compete litigation in this country has risen by over 60% in the last decade as more employees leave their employers to open their own businesses. And that's just court decisions, not every case that has been filed; 760 such cases were decided last year alone. The article asks whether non-competes are dampening entrepreneurship. I think that is a highly dubious proposition, particularly since these agreements are generally speaking very limited in scope and in the state with the most start-ups, California, they are generally illegal, except in the context of the sale of a business.

It is becoming more frequent that employers are requiring their employees to sign non-compete agreements to protect their trade secrets, business relationships and customer data.

These agreements are easier to enforce in some states than in others. Take, for example, Florida and Massachusetts where it is very easy to enforce these agreements when an ex-employee starts a new company or joins a competitor within one year of departure, though Massachusetts is considering limiting this period to 6 months. In contrast, in July 2012, New Hampshire enacted a law that voids non-compete agreements that aren't provided to applicants before or when a job offer is made, or when a current worker's position changes. State legislators in New Jersey and Minnesota have also recently introduced bills to limit or void non-compete agreements.

California, the home of many start-ups, makes non-compete agreements void under its Business and Professions Code section 16600, and as a result, it is fairly common to find rival start-ups.

Nonetheless, California companies have other means at their disposal to protect their trade secrets so that an entrepreneurial ex-employee cannot take the crown jewels of the company. Properly drafted confidentiality agreements and adherence to some basic protocols will make it difficult for an ex-employee to lawfully start a competing company.

Talk to a knowledgeable competition and trade secret attorney to learn more about how to bind your employees, vendors and joint venturers to lawful confidentiality agreements and to learn what protocols are required in your business to protect the confidentiality of your trade secrets.