Keeping Your Business Assets Safe from the Competition

Norton Hammersley Business & Corporate Law

Hear the  words  non-compete,  non-solicitation  or  trade  secret  agreement,  and  many of us think of huge multinational corporations embroiled in expensive lawsuits over the protection of a secret formula or trying to keep key employees from being lured away to other companies for their insider knowledge. Yet, as any entrepreneur knows, you don’t have to be a corporate giant to have important elements of your business that you want to protect from the competition.

In fact, regardless of business size, disputes over what qualifies as confidential or sensitive information and the leeway companies have to protect it are among the most highly litigated and complex areas in law today. Knowing what you can and cannot protect within your business and putting the proper safeguards in place to do so can mean the difference between maintaining your assets, as well as your livelihood, versus spending tens of thousands of dollars in court costs.

“Generally speaking, agreements in restraint of trade are illegal,” says Philip Hammersley, a shareholder with Sarasota-based Norton, Hammersley, Lopez & Skokos, P.A., who concentrates in complex construction, com- mercial, trust and estate, and real property litigation.

“However, both Florida and federal law provide that if a company has a legitimate business interest in protecting some sort of proprietary information, they can do so through non-compete, non-solicitation and trade secret agreements.”

In other words, business owners can’t squelch com- petition simply because they want to keep profits all to themselves, but they can ask partners, employees, sales agents and other associates to sign agreements promising not to share, sell, steal or otherwise give away the company’s most important proprietary information. Such information can include, but is not limited to, items like customer lists, manufacturing processes, pricing formulas, special software developed for the business and other elements that create value for the company.

“Legitimate business interest and proprietary value are the key concepts,” says Darren Inverso, a fellow shareholder at Norton Hammersley, concentrating in commercial and construction litigation, partnership disputes and real property litigation who, along with Hammersley and associate attorneys Derrick Maginness and Erik Hanson, handles the firm’s clients and cases involving non-competition, non-solicitation and trade secret agreements. “It can’t just be something that is available in the public domain.

“For instance, if your business acquires its customers simply by going through the phone book and finding names, then your customer list is probably not going to be protected. On the other hand, if you have built up and developed a list over time thanks to your track record of service and doing business with a group of customers, then that heightens your claim for legitimacy.”

While the laws protecting confidential and proprietary information and trade secrets have been adjusted and tweaked over the years, the idea that companies have legitimate business interests that must be protected has remained a constant. The gray area comes when company owners try to determine just how broad or narrow the definition of a legitimate business interest is.

For answers, some turn to friends for advice or, as with so many other things these days, to the Internet. While often provided with the best of intentions, the advice they receive can be problematic or, in a worst-case scenario, can lead to even bigger issues down the road.

“We have clients all the time who come in and say ‘so and so’ used to work for me, and now he’s out calling all of my customers,” says Inverso. “In some cases, they even have an agreement that the employee signed, but it’s six or seven years old, and they got it from a buddy or they downloaded it from the Internet. The law evolves over time, and so that agreement which may have been good a few years ago is now no longer valid or interpreted the same way in court.”

Discovering that an agreement upon which you based your business operations and your relationship with employees is out of date, invalid or even just too broad is obviously more than disappointing. It can have devastating consequences for your business as well. Suddenly, the safety net that you thought was protecting you and your confidential information from the competition has turned into an anchor of costly litigation, disgruntled customers and destroyed trust.

That’s where advice from an experienced law firm like Norton Hammersley can help. By sitting down with clients and discussing their business needs and how their businesses operate, they can address owners’ worries and concerns and provide advice on how best to protect the company’s valuable assets. They can also help owners determine what aspects of their businesses can, and cannot, be legally protected through instruments like non-compete, non-solicit and trade secret agreements. Perhaps most importantly, by establishing a lasting relationship with the business owner, they can help keep him or her abreast of appellate court decisions and other legal changes that could impact the company and its agreements with employees.

When done as part of the planning process by an own- er who is just setting up a new business or perhaps one who is acquiring a business from someone else, such legal counsel can help steer operational decisions as well. For example, if certain elements of the business cannot be protected by non-compete, non-solicit or trade secret agreements, then an owner may decide to change the way in which he or she allows employees to access certain types of information or processes related to the business. In other words, instead of giving employees access to every piece of information about the business, the owner may restrict them to only those items that are vital to their job functions.

Although prior to start-up or during the transfer of ownership due to sale may be the ideal times to implement non-compete, non-solicit or trade secret agreements, the attorneys from Norton Hammersley warn that it is never too late — or too early — to speak with counsel about setting them up for your business. After all, the initial cost of drafting the agreements pales in comparison to those that can be incurred once a problem or lawsuit arises.

“As with almost everything else in business, it is far better to be proactive with these types of agreements than to wait until something goes wrong,” says Inverso. “For example, a good attorney will probably charge a busi- ness $1,000 or less to draft the agreements in advance. That is minimal compared to the $5,000 you can spend just to file a case in court, and that is only the beginning. Taking a case to trial can quickly escalate into tens of thousands of dollars or more, depending on the size of your business.”

Of course, simply having an agreement in place does not guarantee that a business will not get involved in litigation with employees at some point in the company’s life. But having good documents in place can at least make that possibility a lot less likely. Furthermore, by establishing a relationship with an experienced law firm, like Norton Hammersley, business owners can rest easier knowing that they have an experienced team to work with in the event the unexpected or unforeseen suddenly becomes a reality.

“In the end, non-compete, non-solicit and trade secret agreements are all about protecting your assets,” says Hammersley. “They are about identifying what you have that is of special value to your business and making sure you have the appropriate mechanisms in place to keep those items safe from the competition, because regardless of your business size, we are talking about real money.”

Connect: Trial Practice and Dispute Resolution Group — Philip N. Hammersley, Darren R. Inverso, J. Derrick Maginness, Erik M. Hanson Norton, Hammersley, Lopez & Skokos | 1819 Main Street, Sarasota, FL 34236 | 941-954-4691

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