What's in a "non" Agreement?
In this article, originally published in the Pittsburgh Technology Council's, TEQ Magazine, I explain some of the legal considerations involved in signing employment contracts, nondisclosure, noncompetition and other "non" agreements.
1. What are "non” agreements?
Executives, IT professionals, consultants and others are frequently asked to sign non-disclosure, non-compete, non-raiding and non-solicitation agreements. These “non” agreements contain provisions called “restrictive covenants” that impose obligations on employees that may survive the employment relationship. “Non” agreements help an employer to keep trade secrets and other confidential information out of the hands of competitors.
The typical non-disclosure agreement restricts the use and disclosure of items such as customer lists, software, formulas, cost and pricing data and similar information. The other “non” agreements may require the employee, during employment and for a set period thereafter, not to compete with the employer, not to solicit the employer’s customers nor hire its employees away from their current positions.
2. What is an Assignment of Inventions Agreement?
In the technology arena, particularly where a company may contemplate going public, it is essential to have clear documentation regarding the ownership of software and other intellectual property. Accordingly, when an employee or consultant develops software or creates other work product that can be protected by copyright or patent law, the employer may require that the developer sign an assignment agreement that confirms that the employer and not the developer owns the work product. This is because the general rule in this area is that the person who creates the work owns it, unless, in the case of employees, it is clear that an employee was hired specifically to create the work.
3. What is an employment contract?
In most states, including Pennsylvania, employment is “at will.” In the absence of a contract, either the employee or the employer may terminate the relationship at any time, with or without cause, as long as the reason for termination is not illegal under a federal of state statute. Because employment terminations frequently bring lawsuits, employers may require employees to sign an offer letter or a more formal employment contract that clearly sets forth the terms and conditions of employment, such as duties, salaries, bonuses, fringe benefits and length of employment.
If separate “non” agreements are not used, the employment agreement may contain similar restrictive covenants and spell out the ownership rights of the parties to the employee’s work product. The employment contract may confirm that employment is “at will” or may contain provisions that require the employer to have good cause to fire an employee. The agreement may also call for severance payments to be made to the employee after contract termination. Usually, severance payments are tied to the employee’s continued compliance with any applicable restrictive covenants.
4. What is a Stock Option Agreement?
A stock option entitles its holder to purchase a number of shares of a company’s stock for a set period of time at a certain price, called the exercise price. Options are ordinarily subject to a vesting schedule that requires a minimum period of employment before the option may be exercised.
Options are usually evidenced by a written stock option agreement that is signed by the company and the option holder. The agreement sets forth the number of shares that may be purchased, the exercise price, vesting schedule and other essential terms. Frequently, the agreement will provide for acceleration of the vesting schedule or termination of the option in the event of a merger or upon employment termination. Employers also use option agreements to sign employees up to “non” agreements and to confirm the ownership of intellectual property.
5. What happens if I leave my current employer?
Planning is the key to successfully switching jobs, starting your own company or changing careers. Careful review is required of any agreements that you have signed. In consultation with legal counsel, you should determine your rights under the agreements, for example, with respect to any options. You also need to determine whether you are bound by restrictive covenants that could hinder you from pursuing your goals. Ideally, at the time of your hiring, you would have been aware of the possibility of future career shifts and in a position to negotiate favorable terms in the agreements that you signed.
Special care is required if you plan to engage in activities in competition with your former employer. Although non-compete covenants are legally enforceable, a number of factors will influence a court in deciding the extent to which a particular covenant will be enforced. If a covenant is not reasonable in scope or duration or imposes an undue burden on your ability to make a living, you may have more flexibility to pursue your objectives than it would at first appear.
Non-disclosure, non-solicitation and assignment of invention obligations are more readily enforced. In addition, regardless of whether you have signed any agreements, you may have a continuing duty to maintain the confidence of a former employer’s trade secrets and to refrain from interfering with your former employer’s business. It is therefore always best not to solicit customers of your current employer while you are still employed. Most importantly, It is imperative that you not take with you, transmit or disclose any trade secrets or other confidential information that belongs to your employer.
