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In recent years, there has been a growing trend in the use of non-compete agreements and other mechanisms to restrict former employees in their new endeavors. Because of the rapid growth in the tech industry, intense competition for IT professionals and frequent job-hopping between dot-coms, employers quickly resorted to such agreements. Historically, such agreements were used in manufacturing, sales and other conventional businesses to protect against unfair competition. Now they extend into the financial sector, Wall Street, insurance, real estate, automobile sales, etc. You might say that it has become a condition of employment in many of these companies to sign some form of non-compete agreement. At the same time their use has generated legal and practical problems for firms (both the former and the new employer) and the employee. ROUTINE PAPERWORK Circumstances arise, when individuals are joining a new company, that they fail to comprehend the full implications of signing a non-compete agreement. Some treat the document as part of the routine paperwork they are signing at the time of hiring, and others simply dismiss the prospect that they will ever face enforcement of such restrictions in the future. Also, employees may not understand the job areas and the competitive marketplace that they may be restricting themselves from, if they leave. If asked to sign a non-compete agreement, a person should undertake some level of due diligence before executing the document. This could involve hiring a personal lawyer to study the agreement; or, more simply, it might mean having a thorough discussion with the new employer as to the realities of the job, identifying the areas of the work and the information that the company is seeking to protect. Businesses that use restrictive covenants with their workers need to approach these agreements with careful thought and preparation. They should address a number of questions. What information needs to be protected? Finances, customer lists, marketing strategies, inventions, intellectual property, etc? Which employees will have access to these trade secrets? Who are the competitors, and what is the geographical scope of the company’s marketplace? What is the necessary length of a non-compete restriction? These issues must be explored if the employer reasonably expects to have its non-compete agreement enforced by the courts. ETERNITY These items also need to be revisited and revised to reflect the changing realities of the marketplace. For example, restrictive covenants in the tech industry that previously might have been legally valid for one to two years now might only be upheld for six months. A New York court in one recent case stated that one year constituted “an eternity” in the Internet industry. Employers should avoid using standardized non-compete agreements. Each restrictive covenant should be prepared with an accurate identification of the job duties and the proprietary information that the parties seek to protect. The company should discern which employees must to be covered by the noncompetes. Cases arise where businesses indiscriminately have had rank-and-file workers sign these documents, yet these employees have not been privy to any trade secret information. Courts will not enforce the agreements if the only result is that someone is being prevented from finding employment. The new, or hiring employer, may also become embroiled in litigation over the enforcement of a non-compete agreement. The company could be accused of misappropriation of trade secrets, as the result of employing an individual who is bound by such an agreement. To avoid these potential problems, companies have instituted various procedures. They may have the new employee sign an agreement stating that he or she does not possess any trade secrets and will not use any proprietary, confidential information gained from the previous employment. During the interview process some organizations will screen out those individuals whose backgrounds suggest that there may be a risk of non-compete litigation. With the increase in use of restrictive covenants, it follows that these agreements have become a more frequent point of contention between workers and their former and new employers. An example of the heightened visibility over this issue is the recent development of a Web site, www.breakyournoncompete.com, which has been attracting a large number of visitors. Nevertheless, non-compete agreements can be very effective tools in the service of a legitimate business purpose. However, they require great care in their development and application, if the parties expect to benefit from them. Peter A. Janus is the editor of Connecticut Labor & Employment Law , published by The Connecticut Law Tribune , and he is a principal in the law firm of Siegel, O’Connor, Schiff & Zangari, P.C. in Hartford, Conn.

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