Trade secrets are paramount to a company’s long-term success. Trusted employees are considered one of a company’s most important assets. In our new virtual environment, protecting valuable IP following the resignation or termination of an employee can present a variety of new challenges.
“Protecting your Assets” is a four-part discussion addressing a variety of concerns at the intersection of employee departures and protecting valuable company trade secrets. In part one of the series, Alison Reif, chair of Choate’s Labor and Employment Group, and Mark Edgarton, a partner in Choate’s Intellectual Property Litigation Group, discuss challenges companies face during an employee’s departure and important steps companies can take to mitigate risk.
To listen to additional episodes in this series, please click here.
“Protecting your Assets” is a four-part discussion which addresses a variety of concerns at the intersection of employee departures and protecting valuable company trade secrets. Topics covered will include navigating successful exit interviews, mitigating database damage and stolen property issues, assessing litigation implications from potential employee raids, and the handling of demand letters.
Alison Reif: Thank you for joining us, everyone. I’m Alison Reif. I’m in the Labor and Employment Group at Choate and I’m here with my partner, Mark Edgarton, who’s a member of the Intellectual Property Litigation Group. We wanted to talk to you all today about handling the departure of key employees. Which can happen unexpectedly and catch folks by surprise. So there are a few things we’ve learned along the way that may be helpful to you. The first actually relates to before anyone announces that they’re leaving. We have found it to be a good idea to have folks audit their personnel files to make sure that they have copies of all the relevant signed agreements that they might want to enforce after someone leaves. That’s typically a non-compete or confidentiality agreement and there are two reasons for doing that. One is that the laws that apply to those agreements have changed in many states. Most recently Massachusetts and Washington State have changed their laws. And while existing agreements may be grandfathered under those laws, you may have had some employees sign agreements under those laws since those laws were passed, but you might want to revisit to make sure that they are still enforceable. If you find you have no signed agreement in the file or the agreement you have is not fully signed, it’s not too late to get one, but you have to be mindful of whether you might need to provide new consideration to have an employee sign a new non-compete agreement. For example, continued employment often isn’t enough depending on which state you’re in. Now, some employers include restrictive covenants in a severance agreement, if you wind up using one of those and if you’re willing to pay severance to the parting employee. But that’s a last resort. It’s best to get an enforceable agreement before an employee departs as the employee likely will have already made plans for new employment by the time they resign and they may not be willing to sign a non-compete at that time, even if you do provide severance pay. Mark, once an employee does announce his or her departure, are there first steps that you would recommend an employer take?
Mark Edgarton: Yes, absolutely. Hi Alison. One thing you definitely want to do is make sure you do an exit interview. We covered this topic on other podcasts as well. So I won’t discuss it in too much detail here. Many companies require an exit interview as part of the departure process, but it’s actually surprising how many cases involve departing employees who either didn’t do any exit interview at all or maybe they did a more very informal interview that is less helpful to the employer. Particularly in cases where the employee may be going to a competitor and may have taken documents or ends up soliciting company employees or customers. The other thing whether through an exit interview or some other means, companies should make sure to ask where the departing employee is going next. Because that information can be very helpful and allow companies to decide what other steps may be necessary to take depending on the situation that’s involved. It’s also good practice to have an employee sign a certification stating that he or she has returned all company property and documents and also acknowledges any ongoing legal obligations owed to the company that may continue beyond the termination dates such as confidentiality, non-compete obligations or customer or employee non-solicit obligations. The certification may also require the employee to certify that they’ve actually conducted a search of their files, including any personal email accounts and confirm that they do not possess any company documents. Often times, employees who take company documents, will claim that they did so unintentionally or they just did not realize that they possessed documents in their personal files or personal email accounts and so these certifications can be very helpful to rebut those claims that are made and also serve good reminders to employees to make sure that they do not possess company documents after they leave the company. Another somewhat obvious topic would be, or step to take, would be that companies also want to make sure that a departing employee’s IT and building access is turned off. Again this seems like a simple thing to do, but sometimes it gets overlooked and lastly, depending on the circumstances, it may also be a good idea to review a departing employee’s emails in the weeks leading up to their resignation, to confirm whether there’s any evidence of suspicious activity such as emails that attach company documents and may be sent from the employee’s work account to their personal account so that they can use those documents after they leave the company. And this can be done quite easily through targeted searches. And in situations where there is the reason for more suspicion, such as an employee raiding situation or maybe several key employees have departed to one particular competitor within the same general time period, a more detailed forensic review of computers should be inducted to determine whether there’s any evidence of suspicious activity such as confirming whether they’ve been accessing files that should not have been or inserting external drives to download information, accessing cloud accounts or drop boxes to upload information or even just unusually printing activity. So those are just some of the things that can be done when a key employee notifies a company that or she is leaving. But Alison, let me ask you, what are some of the particular challenges that you may have seen in the case of departing employees during the remote pandemic environment over this past year or so?
AR: Really good question Mark. I have two thoughts in particular, two trends that I’ve seen employers struggle with. The first is: make sure the relevant employment and non-compete agreements that I was talking about earlier are available electronically, especially if there’s no one in the office at the moment who has access to physical files. Often employers keep those in a physical file and while they might have an electronic version, it doesn’t have a signature on it and typically when someone leaves, you write a letter confirming their departure reminding them of their agreements and enclosing a copy and if you don’t have access to the signed one that can be difficult. So, scanning or uploading all the signed agreements now is a very good idea. The second step to take is to have a plan for collecting property, particularly laptops, cell phones, any electronic devices that people are using from home, but that belongs to the company. Obviously, when we weren’t in this remote environment, those would be collected in a departure meeting or be collected on the spot and there generally on the premises. Now folks have those in their homes, so you need to have a courier service or sometimes if you are using a forensic service they will collect them. But you generally will want to use one of those services to collect property from people’s homes. It can be arranged for people to be home or to leave on their front porch if it’s sufficiently secure, that kind of material and it doesn’t present any health concerns by way of COVID if contact isn’t required, but it still gets the property back quickly. Obviously, you’ll want to take that step quite quickly after someone leaves because folks are able to use, do anything with that equipment up until the time that you collect it from them although of course some access can be shut off centrally by your IT folks. So those are some tips in the remote environment. Mark do you have any recommendations about communications to others about an employee’s departure?
ME: In general I think companies should be as proactive as possible when a key employee leaves because it’s always better to get out in front of employee transitions, both with other company employees that are going to remain with the company and as well as key customers. So for example, if a departing employee has been responsible for handling key accounts, it’s a good idea to plan ahead and have a transition plan in place to ensure that those key customer accounts will continue to be covered by other talented employees after the employee departs so that there’s no gap in the relationship and this makes it less likely that a key customer will end up buying competitive products from a departing employee’s new employer for example. How about you Alison? Do you have additional thoughts about these issues?
AR: Just one, external communications are obviously critical, but don’t forget about internal communications. Now that people are working remotely, folks are out of sight, out of mind a bit and sometimes the rumor mill moves fast and so you want to think through as quickly as possible, who do you need to notify internally, and in what order. You also of course need to be careful about what you say about someone’s departure. Generally, less is more. But you don’t want to forget about key people or for people to find out from a source that may be suboptimal.
So thank you everyone for joining us today to talk about handling the departure of key employees and particularly in a remote environment.