LEGAL BRIEFS
CheckYour C-Suite Employee at the Door
– Managing Competitor Misconduct
BY SUSAN K. EGGUM
IIntellectual
n 2013 the Commission on the Theft of American
Property unanimously found that U.S. companies
sought or obtained by the former employee if the risk of use
or disclosure of trade secrets can be demonstrated.
suffer annually about $1.1 billion of losses due to misapproFor key employees who are being separated, they will be
priation of trade secrets. How effective are your established
reminded of this obligation at departure where the employprotocols for exiting and onboarding C-suite employees to
ment contract requires written advance notice of an intent
and from competitors? Entities that hire a key employee from
to accept an offer of employment with a competitor. If not,
a competitor bear special risks of legal action by the former
then at departure, demand can be made (though compliance
employer. The onboarding entity, despite good faith efforts to is discretionary) to give advance written notice of an intent
prevent breaches of covenants given the former employer, is
to accept employment with the competitor. In the best of
exposed to claims that the key employee-defector will inevita- cases, such notice gives counsel an opportunity to negotiate a
bly use, if not disclose, protected trade secrets. Due diligence
resolution short of litigating to a court order or, more costly,
pursued while assessing the risk and value of taking on such
to a jury verdict.
a key employee should include a legal analysis of the potential
Finally, courts will hear and often rule against the hiring
merits and costs of temporary restraining order and injuncentity where there is no enforceable non-compete and no mistion litigation triggered by a hire. The onboarding entity
appropriation of any trade secret. A case in point is an opinion
should be prepared to respond to the transferring executive’s
issued in March 2014 by a Delaware court in Wayman Fire
request for a defense and indemnity agreeProtection, Inc. v. Premium Fire & Security LLC.
ment in the event the former employer sues
In that case, the employer sued its former
both the hiring entity and the hire. Highly
employee who assisted in the formation
valuable, in-demand executives often gain
and operation of a competing entity selling
such defense agreements in exchange for
fire safety systems. The court found that
other consideration.
employees, even those exposed only to conEven without an enforceable non-comfidential information and not trade secrets,
pete agreement, businesses cannot prevent
occupy a position of trust and confidence.
former employers’ lawsuits by placing the
The fiduciary duties of loyalty and honesty
new hire in a business unit unrelated to
owed to the employer during employment
other divisions competing with the hire’s
prohibit certain types of conduct in preparformer employer. Such lawsuits, depending
ing for an exit. For example, the transport
on your perspective, meddle with the hiring
of employer files that are not protected
entity’s managerial, operational and even
trade secrets at departure may nevertheless
sometimes IT security functions to gain a
give rise to breach of fiduciary duty claims
court order assuring that the hire’s alleged
and claims of conversion, among other
inevitable use of trade secrets cannot be of
tort remedies.
Susan K. Eggum is a shareholder
any benefit to the hiring entity.
In short, forming and ending C-suite
at Lane Powell, where she focuses
For the entity that is losing or has
employment relationships in industries that
her practice in employment and
terminated a C-suite employee moving to
leverage proprietary data frequently involve
employer-related business and
a competitor, immediate demand will be
demands, claims and litigation, despite
business tort litigation, including theft of intellectual property
made on both the new and former employee
best efforts to manage the risks. For better
and unfair competition. Susan
to comply with the covenant if there is a
or for worse, depending on whether you
has a Yellow Belt certification in
valid non-compete and arguments conlost or gained the executive, even situaLegal Lean Sigma and Projcerning specific trade secret data that the
tions lacking a non-compete agreement or
ect Management. She can be
departing employee knows and could likely
qualifying trade secrets, tort remedies are
reached at (503) 778-2175 or
use. Even without a valid non-compete,
just as sweet to the courts as contract and
eggums@lanepowell.com
state trade secret statutes can result in at
statutory claims.
least a preliminary bar on the employment
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72 OREGON BUSINESS
10.2014