In the course of carrying out a business, there is undoubtedly going to be some information that a business owner is going to want to keep strictly within the business. This information is valuable to the company and could dramatically harm a business if competitors were to get their hands on it. There are many ways that an employer can place restrictions on employees and seek redress for violations when an employee wrongfully tries to share such valuable information with other businesses.
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Business Temporary Restraining Order (TRO)
One of the most common ways to stop an employee or former employee from harming your business is to try to have a judge order a temporary restraining order (TRO) or injunctive relief. A TRO is granted as a short-term restraining order until the employer has the chance to be granted permanent injunctive relief. A TRO forces the employee from taking any actions that are forbidden in the order. Injunctive relief is an order from the court that can either command the employee to do something or prevent him from taking any further action. An employer can seek a TRO when an employee is violating a non-compete agreement, a non-solicitation agreement, or has wrongfully taken something from the business (including, confidential information, trade secrets, and customer lists) and uses that information to compete with and hurt his former employer’s business. A TRO can be granted with or without letting the opposing party know of the action. If an employee knows about the attempt at a TRO, he or she may be able to show up in court to defend him or herself. Minnesota Rules of Civil Procedure Rule 65.01 explains the TRO process. A TRO can be granted without giving the employee notice only under the following circumstances:
- it is clear from the facts that immediate and irreparable injury, loss, or damage will result to the employer before the employee or the employee’s attorney can be heard in opposition, and
- the employer’s attorney states to the court in writing the efforts, if any, which have been made to give notice to the employee or the reasons supporting the claim that notice should not be required.
The granted TRO will last until the employer seeks injunctive relief through a temporary injunction. If the employer does not proceed to apply for the temporary injunction, the court will erase the TRO. Minnesota Rules of Civil Procedure Rule 56.02 govern the temporary injunction process. In order for a judge to grant a temporary injunction, the employer will have to provide notice to the employee or the employer will have to show to the employee why there is a reason for the injunction. When the information provided to the judge at the hearing shows that there are sufficient grounds for there to be an injunction, the judge may decide to grant the injunction. Every TRO and injunction must include the following: the reasons the TRO or injunction was issued and a description in reasonable detail of the act or acts that the employer wants restrained. The TRO or injunction is binding on all of the parties involved (both the employer and the employee) and their officers, agents, servants, employees, and attorneys. When an employee is harming an employer’s business by taking away competition, acting against the employment contract, or sharing sensitive business information, the employer can seek to have the employee stopped by seeking a temporary restraining order or a temporary injunction.
Non-Compete Clauses and Non-Solicitation Agreements
Non-compete clauses and non-solicitation agreements are both typically additional aspects of an employment contract. When an employment contract includes a non-compete clause, the employee promises not to compete with the employer, should the employer-employee relationship end for a specified amount of time and in a specific area. A non-solicitation agreement states that the employee will refrain for a specified amount of time from enticing other employees to leave the company or to lure customers away from the employer. In most cases, non-compete and non-solicitation agreements are in place to protect a business’s legitimate economic interests, including, trade secrets, confidential business information and strategies, long-term business relationships with customers, and specialized skills and training. An employer does not want to train an employee especially only for that employee to leave with that skill, then use it against the ex-employee, and compete with his business.
Likewise, the employer does not want an ex-employee who had access to information about the employer’s business to solicit the employer’s customer base and take business away from the employer. In most situations, when the employee originally enters into an employment contract with the employer, the non-compete and non-solicit agreements in the contract will state that if the employee leaves the company he will not compete with or solicit from the business for a specified amount of time, for example, one year. An employer can seek to have a non-compete or non-solicitation agreement enforced when he or she believes that an ex-employee is violating a clause in his old employment contract. When one of these agreements, or both, is violated, the employer can receive compensation for the breach of the employment contract and for damages that resulted from any sensitive information or skills used to compete against him or to take away employees or customers. Some employment contracts specifically will list what the remedies will be should an employee violate any of the terms of the contract. If not in the contract, an employer can still sue for breach of contract and receive monetary damages from the breach. Additionally, the employer can seek a TRO or a temporary injunction, having the court force the ex-employee from disclosing any further information and detrimentally harming the employer.
Employee Raiding by Competitors
Although ex-employees can be a threat to an employer, an employer must also have protection from other businesses. It is not uncommon for one business to try to persuade another business’s employees to come work for it. This particularly becomes an issue when key employees of one employer are recruited by another. A key employee is one that knows the internal workings of the business and perhaps knows about confidential business information, trade secrets, and knows the customer list. Employee raiding, as this is called can be detrimental if the new business plans to use the key employees to compete with the employee’s ex-employer. The main concern for the employer is whether he has any right to seek redress if his employees leave to work for another company when those employees had not signed a non-compete agreement. Employee raiding can be a difficult situation to assess. One must balance the concerns of protecting the employer from unfair competition, trade secret misappropriation, and the like, with protecting an employee’s right to freely seek employment. In general, if the raiding of the employees drastically affects the original employer’s ability to complete his contractual obligations, the business responsible for the raiding may be liable for unfair business practices and interference with contractual relationships. If a business has improperly raided employees and detrimentally hurt the original employer, the employer may be able to receive monetary damages for the unfair behavior. Additionally, the employer may be able to seek a TRO and a temporary injunction to stop the raiding.
Misappropriation of Trade Secrets
It is in any employer’s best interest to protect the trade secrets of his or her business. A trade secret is information that includes any formula, pattern, compilation, program, device, method, technique or process that derives economic value from not being known to the public, who could obtain value if the secret was disclosed, and that it is such information that the employer has taken reasonable efforts to maintain the secrecy of the information. When trade secrets of an employer are misappropriated, an employee gives them to a new employer in the same industry as the former employer, giving the new employer an advantage over the other. An employee can take the general skills and knowledge that he acquired at a job and pursue an occupation with such training. The issue arises from specific information that is unique and has an economic value to a particular employer. An employer can seek a TRO or an injunction to protect his trade secrets and to prevent an employee from disclosing his secrets. In order to be granted injunctive relief, the employer will have to show that there is a threat of or actual disclosure of his trade secrets. Such a threat can be established if the employer can show that there is a high degree of probability of an inevitable disclosure of the trade secrets. If the relief is granted, the employee is barred from using those trade secrets in any way. Such an injunction will typically last until the trade secret ceases to exist, but can continue a while after it ceases to exist in order to eliminate any commercial advantage that would result from any misappropriation of the trade secret. The following information is typically not considered trade secrets; customer lists (because identities are readily ascertainable), general knowledge within a particular field of work, general business information, variations on widely used processes, and obsolete information.
Protection of Confidential Information
Some information is not considered a trade secret, but is valuable to the employer nonetheless and should be protected from employees making wrongful disclosures. Most employers protect their confidential information by using non-compete agreements in their employment contracts. Some information falls short of being a trade secret because there might not be direct economic value from keeping the information a secret, it may be ascertainable by third parties who wish to obtain economic value from the use of the information, or the employer may not have made a reasonable effort to keep the information a secret. Still, the information could still be something an employer wishes to protect. For example, consider a high-class restaurant owner who hires a new chef. The restaurant owner may consider his recipes that he has on his menu to be sensitive information, and he may desire that the chef not take those recipes when he leaves and uses them to compete with the restaurant. These recipes may not be considered trade secrets, but can still be protected. When a non-compete agreement is violated and an employee uses an ex-employer’s confidential information to compete with that ex-employer, the employer can seek injunctive relief to get the employee to halt using such information.
Breach of Employee Duty of Loyalty
With or without a non-compete agreement, a former employee owes his former employer a duty of loyalty. This duty encompasses the general obligation to avoid misappropriating trade secrets or using confidential information that was available to him while employed. This duty also includes soliciting customers of the employer until after the employment relationship is terminated, as well as fellow employees from the employer, and the employer’s vendors. In addition, there is a duty to refrain from recruiting a substantial number of the employer’s employees. An ex-employee cannot recruit so many of the employer’s employees that the employer cannot continue to function as a business anymore. Generally, when this loyalty is broken, a former employer can file for an injunction to get the employee to stop acting in such a detrimental way.
Usurpation of Corporate Opportunities and Self-Dealing
There are also protections in place for owners of a business and from one owner doing business on the side that may have a negative impact on the business as a whole. Usurpation of corporate opportunities occurs when a director, officer, or executive of a company takes something that could be used to the benefit of the corporation and uses it for their own personal gain. These actions can include taking on jobs on the side where the payment should go to the business instead and taking an idea that was presented to them or developed by them in the course of their work with the corporation, but they use it to enrich themselves. In general, individuals in such a position have an obligation to share these opportunities with the corporation, not to use them to their own personal advantage. When a person commits usurpation of corporate opportunities, it is considered a breach of fiduciary duty. All owners, directors, officers, executive officers and the like in a corporation have a fiduciary duty to one another. What this means is that they all promise to act honestly, in good faith, and with loyalty to the other individuals running the business. When someone commits usurpation, he or she is not acting honestly towards other members, in good faith, or loyally to the business. Such a breach can result in monetary damages to those individuals who are harmed by such behavior. Self-dealing can also be a problem. When someone in a corporate position makes a deal with himself or herself, it is self-dealing. This occurs when someone pays far less for something than what it is otherwise worth. For example, it would be self-dealing for a car salesperson to make a deal for himself and sell himself a car for much cheaper than he would sell it to a customer. In a corporate setting, self-dealing occurs when someone like a director approves the sale of a corporate asset to himself at a discounted price than he would sell it to another. Self-dealing is also considered a breach of fiduciary duty. Monetary damages can be given to those also in corporate positions that experienced harm from such behavior.
Corporate Theft of Intellectual Property
Intellectual property theft is also a real concern for employers and owners of businesses. When intellectual property is stolen, an employer is robbed of his ideas, inventions, and creative expression. Such theft can significantly harm a business, forcing a business to lose any competitive edge it may have had for having such information. Theft of intellectual property could cost a company millions in revenue losses. For example, say that a company’s design for a product is stolen and someone else then produces that product with that specific design but for a cheaper price. The original business with the design will lose its business to the cheaper product and will no longer be seen as having an innovative new design. With the rise of internet use, most intellectual property theft occurs digitally from all over the world. Competitors, criminals, and even insiders within the corporation who are disloyal can commit this theft. Unfortunately, because this normally takes place over the internet and computers, it is incredibly hard to track down intellectual property thieves, and preventing such crime is near impossible. It is essential that a business that has intellectual property to protect take as many measures as possible in securing its computer systems in order to have the best chance to prevent the loss of intellectual property. When valuable intellectual property is stolen, a business can be seriously harmed. A company can lose its long-term profitability and ability to compete in a given marketplace, its reputation with customers, partners, and suppliers may be tarnished, and the loss of information can be harmful to relationships built on trust, to the market position of the company, and to the company’s ability to bring in new business. Although there is no definite method of preventing intellectual property theft, it is important that employers and business owners are aware of the threat and handle their intellectual property with care and exercise very strict security measures. It is in every company’s best interest to protect the ideas that the business relies on.
An employer or business should not just stand by and watch someone take valuable information and use it against the business. There are several remedies that an employer can pursue when he or she is being harmed by an ex-employee, a fellow business owner, or other individuals that may be attacking his or her business. As a business owner or employer, it is important to know your legal options and rights and to seek legal representation when you feel as though someone else is harming your business.