Employer Risk Mitigation in Finding, Retaining and Developing Top Talent

During conversations with human resource managers, business owners and corporate recruiters, one of the top issues currently facing employers in the rebounding economic climate is locating, retaining and developing top-level employees.

From a legal perspective, numerous issues consistently face employers seeking to recruit and retain top talent. Some key legal issues include:

·      Incautiously hiring top employees from a competitor;

·      Failing to acquire good title to intellectual property created by employees; and

·      Not implementing measures to adequately protect the company’s trade secrets.

Recent litigation over these issues demonstrates that each of these challenges can cause significant problems for unsuspecting employers, while certain protective measures can often mitigate the risks of these issues.

Be Cautious When Hiring Former Employees of a Competitor

Given the mobility of the modern workforce, hiring former employees from competitors is an almost inevitable practice in many industries. In many cases, hiring former employees from a competitor will be routine and uneventful. But, when an employee from a competitor had access to confidential information or trade secrets, then the hire must be made cautiously.

An initial important safeguard a company can take before hiring a former employee of a competitor is to find our whether the potential hire is subject to a restrictive covenant. Such covenants are generally in the form of a restriction on working for a competitor or a restriction on the solicitation of customers, suppliers or employees. 

State laws vary significantly in their treatment of non-competition and non-solicitation restrictions. For instance, Florida has codified the types of interests that may be protected by an employer in a restrictive covenant and has defined the reasonable temporal and geographic limits that will be enforced.[1] By contrast, in Illinois and many jurisdictions, the more fluid “rule of reason” applies to determine whether a particular restrictive covenant will be enforced by a court given the circumstances.[2] Illinois courts have enforced covenants that prohibit an employee from working for a competitor for as long as three years after leaving the employer,[3] while other courts have struck down covenants as unenforceable when they do not adequately define the capacity in which the former employee is prohibited from working for a competitor.[4]

In addition, a former employer will often add a claim for tortious interference with contract against the company seeking to hire the former employee. Therefore, companies must be very careful when hiring former employees who are under restrictive covenants.

Even if a potential hire is not subject to a restrictive covenant, the potential employee must still be careful not to disclose or utilize the trade secrets of the former employer in the new position. Companies hiring former employees of a competitor should be careful to mold job duties of these employees to minimize the potential for a former employer to bring a claim for violation of its trade secrets.

Make Sure to Adequately Protect your Company’s Rights to Intellectual Property

Companies that recruit top talent to perform work creating new products or designs must be careful to ensure that the company owns the work created by an employee. For example, under the patent law doctrine of employee invention, the patent rights to an invention made by an employee generally belong to the employee and not his or her employer. The employee may assign his or her rights to the employer, but such assignment must be in writing and supported by consideration. 

In a recent Federal Circuit case, an employee who alleged he invented a downhole gas separator baffle for Marathon Oil Company filed suit for infringement of his intellectual property rights.[5] The invention improved machinery used to extract methane gas from water-saturated coal in a coal bed methane gas well.[6] The employee claimed he had conceived of the invention prior to being employed by Marathon.[7] The invention, however, was not constructed until after he was employed by Marathon.[8] Citing to provisions in an employment agreement assigning rights to inventions, the Court held that Marathon was the rightful owner of the patented technology.[9]

The Court in the Marathon case applied Wyoming law. Other states, including Illinois, have statutes defining the circumstances under which an employer can require an employee to assign patent rights.[10]  Further, even if an employee’s work is not patentable, an employer may still assert a copyright to the work.  The Marathon case is a lesson for employers to ensure that the proper documents are in place to establish and protect title to intellectual property created by employees during the course of employment.   

Protect Your Trade Secrets

This past August, Motorola Solutions, Inc. (“Motorola”) filed a lawsuit against one of its former vice presidents in Illinois court for violating his confidentiality agreement and the Illinois Trade Secrets Act when he allegedly tried to misappropriate certain information regarding Motorola’s two-way and radio broadband technology with him to a competitor.[11] Motorola alleged that the former vice president worked in Motorola’s public safety communications division and had access to proprietary information about the company’s technologies when he resigned and worked for a competitor.[12] Using the “inevitable disclosure” doctrine, Motorola alleged that the former vice president would use its confidential information during his work for the competitor. 

Employers who recruit high-level employees often face the same dilemma as Motorola in terms of protecting trade secrets – the employer must provide access to highly confidential and important information related to the business to top employees in order to do a job; however, the employer does not want these employees disclosing or using this information on behalf of a competitor in the future.

Employers should be aware of how to adequately protect confidential information. In addition to having solid confidentiality agreements, employers may assert that certain information is a trade secret. To be subject to trade secret protection, confidential information must satisfy the criteria under the Illinois version of the Uniform Trade Secrets Act.[13] At minimum, employers must demonstrate that they invested substantial time, effort and expense in developing the secret information and that they took “reasonable measure” to maintain the secrecy of the information.[14]  This can provide employers with an additional layer of protection for their highly confidential information.

Authored by: Ryan A. Haas