Mark Pestronk
Q: A trusted employee of my travel business recently announced that she was quitting and opening another business with the same specialization as mine. In other words, she will be competing with me. Since she learned everything about the business from me, and since she knows the names of all of our major clients, can I stop her from competing? Can I stop her from soliciting my clients, employees and ICs? What if I can prove that while she was still employed with my agency, she took steps to set up her new business?
A: The first and most important issue here is whether she has an employment contract with an enforceable noncompete clause. In my experience, only a small minority of travel industry employees have such contracts, so I will assume that your employee does not have one.
In the absence of such a contract, here are some general principles covering what employees and ex-employees can and cannot do:
- First, while they are still employed by you, they have a legal duty to refrain from competing with you or assisting your competitors or potential competitors.
- Second, notwithstanding the duty not to compete while still employed, they are allowed to take action to prepare for competition. For example, they may sign a lease for office space or subscribe to software services.
- Third, although they can prepare for competition while still employed, they cannot copy any records, including customer, employee or IC information, and they cannot use such information while still employed, even if it is just in their heads.
- Fourth, although they cannot engage in mass solicitation of your employees or ICs, some court decisions have held that they can make their plans known to one or more of your staff and let them make up their own minds.
- Fifth, once they are no longer employed by you, they are much freer to do as they wish. They can solicit your clients, employees and ICs. They can use confidential information that they did not take while still employed, but they cannot use their former logins to download information in your computers.
- Sixth, they cannot use trade secrets that they learned or had access to while still employed. For a piece of information to be a trade secret, you must have taken steps to keep it confidential.
Even assuming that you can successfully sue after an employee used trade secrets or engaged in mass solicitation, it does not necessarily follow that you will be able to obtain a court order requiring the person to stop competing. It is possible that you will only be awarded damages, which may or may not be collectible.
The lesson is that you need to require your key employees to sign enforceable employment contracts with appropriate restrictive covenants that are allowed in your state and the state where the employee lives. Once such contracts are in place, periodic reminders to staff and warning letters to departing employees will help deter conduct that could harm your business.