Before Employees Leave, Protect Your Assets
By David R. Cook Jr., Construction Executive
A review of most construction companies’ financial records reveals their primary value is their owners and employees. Thus, firms have a compelling interest in attracting and retaining skilled and professional labor, as well as avoiding the devastating loss of talent and know-how when they leave or engage in competing businesses. Construction companies that cater to the demands unique to each type of employee will find an edge in the employment marketplace. For instance, to attract older employees, construction companies could consider offering a wide array of tax-advantaged savings and retirement incentives, including health savings accounts, college savings accounts, 401(k) accounts, simplified employee pensions, IRAs and qualified and non-qualified deferred compensation plans.
With younger staff, employers should emphasize the company’s work-life balance, company-wide gatherings, and mentorship and training opportunities. When feasible, employees could be encouraged to work outside of the office or away from the jobsite. Companies might task younger employees with environmentally friendly projects or lower-income housing projects.
With all the time and effort construction companies put into attracting and retaining employees, they should take the additional step of protecting their investment. Businesses should consider requiring key employees to execute agreements to prevent them from working with competitors, soliciting the company’s employees or customers away to a competitor, or misusing the company’s intellectual property.
A noncompete agreement prohibits a former employee from competing with the company by various actions, including employment with a direct competitor or setting up a competing business in the same area as the former employer. Because construction companies exert so much effort in training employees, it is reasonable to expect employees should not divert those efforts toward a competing business for a certain period of time.
At the same time, courts tend to view noncompete agreements as restraints of trade and, in many states, will require them to be reasonable and construe them narrowly. They will judge them based on various factors, including their duration, geographic area and scope of prohibited activities. For example, a noncompete agreement that prohibits an employee from working in the construction industry for a decade will almost certainly be unenforceable.
Some courts deem unreasonable noncompete agreements as wholly unenforceable, while others “rewrite” them with more reasonable restrictions. Some states have enacted legislation specifically addressing the enforceability of noncompete agreements.
In the employment context, a nonsolicitation agreement prohibits an employee from soliciting customers or other employees away from an employer. Construction companies have a valid interest in their established relationships, including those created or nurtured by its employees. If a former employee calls on the company’s customers or entices other employees to leave, the company could suffer significant losses.
Similar to noncompete agreements, most courts require nonsolicitation agreements to be reasonable and will consider the same factors of duration, geographic area and scope of activities or customers covered. In addition, some states have enacted legislation governing the enforceability of nonsolicitation agreements.
CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS
Construction companies use confidentiality and nondisclosure agreements to protect their trade secrets, know-how and sensitive intellectual property. Unlike hard assets such as machinery, when employees leave, they do not leave behind their knowledge of the employers’ trade secrets, such as product information, formulas, techniques, processes, and lists of customers and potential customers and suppliers. Because these trade secrets are extremely valuable, construction companies protect them through confidentiality and nondisclosure agreements. To be enforceable, most states require confidentiality and nondisclosure agreements to be reasonable as to time, area and scope.
STATUTORY AND CASE LAW PROTECTIONS
In addition to agreements with employees, construction companies should look to their state’s statutes and court cases concerning employer-employee relations. Many states have enacted laws prohibiting the disclosure of trade secrets, and some even impose penalties and allow the employer to seek an injunction prohibiting disclosure. One type of authorized injunction, called a temporary restraining order, is particularly helpful to construction companies because they compel the former employees to immediately cease disclosure pending the conclusion of a potentially lengthy trial.
Courts have developed causes of action to permit recovery of damages in the event a former employee discloses trade secrets and confidential information or otherwise injures the employer. These actions could include breach of fiduciary duty, misappropriation of corporate opportunity, conversion and theft, and interference with business relations.
As technology and digital data become more useful and valuable, construction companies should review state and federal statutory protections of computer data and email systems. Many rogue employees use company email systems to divert resources and business away from their employer for their own benefit. These relatively recent statutes impose civil and criminal penalties for such wrongful actions.
Construction companies must face labor challenges head on. They must actively attract qualified employees and retain them through targeted marketing, which focuses on prospective employees’ interests. At the same time, after investing time and money in talent development, construction companies should prepare for the day employees leave. They should consider various agreements that retain the company’s intangible assets and trade secrets and prevent former employees from unnecessarily damaging the business.