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Non-Compete And Non-Solicitation Agreements For Employees/Contractors

On Behalf of | Apr 29, 2010 | Employment Law

As companies grow they acquire or build intellectual property capital along with products and inventory. This intellectual property may include processes, formulae, data, functional specifications, computer programs, blueprints, know-how, improvements, discoveries, developments, designs, inventions, techniques, marketing plans, strategies, forecasts, new products, unpublished financial statements, budgets, projections, licenses, prices, costs and customer and supplier lists and/or information transferred to the company subject to a confidentiality restriction. As part of the management team you, will want to clearly define the rights your company has in its technology and to ensure that the company owns all the technology it has paid its employees or any independent contractors the company may retain to develop.

Employees: The type of products or technology the company owns helps determine the scope of the employee agreement as well as who may be required to sign one. The more unique the company or proprietary the information, the more important it is to get most if not all employees to sign an employee agreement which clearly states the company owns what each employee develops while employed by the company. These agreements should contain a provision that automatically assigns patent rights to the company. The agreement may contain language that states that if the company is unable, after reasonable effort, to secure the departed employee’s signature on any application for patent, copyright, trademark or other analogous registration for any other reason whatsoever that the employee irrevocably designates and appoints the company and its duly authorized officers and agents as his agent and attorney-in-fact, to execute and file any applications or any other documents and to do all other lawfully permitted acts to further the prosecution and issuance of patent, copyright or trademark registrations.

You may also want to include a provision where the employee states he is free to work for your company and that his employment does not violate any other agreements that he may have entered into. It might further indemnify the company from any claims that may be made as the result of the employee’s alleged breach of any previous agreement or another company’s intellectual property rights.

Some companies will also include non-compete and non-solicitation provisions as well. The non-compete provision must be tailored to the legitimate business interests of the company and can not be overbroad in scope and term. For many businesses this may mean limiting the territory to New England and the term to one year. The non-solicitation provision prohibits the employee from contacting your customers for a period of time after they terminate employment.

The agreement should also contain a provision that requires the employee to agree that at the time of leaving the employ of the company they will deliver to the company (and will not keep in their possession or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of the aforementioned items belonging to the company, its successors or assigns. In the event of the termination of employment, you may require the employee to sign and deliver a Termination Certificate.

Finally, the agreement should always contain a provision that clearly states that the employee agreement is not an employment agreement.

A good practice is to send the employee agreement with the offer letter so that the new employee has a full understanding of the terms before they come to work the first day.

Independent Contractors: The issues are slightly different when dealing with independent contractors since some may work with your competitors already and many will not be willing to sign an agreement with limitations on their right to work in the future. However, because your company does have a legitimate business interest in keeping a contractor away from your customers, you should always include a non-solicitation provision. Absent such a provision in the agreement, the contractor, once they know who the customer is, may decide to undercut your pricing and work directly for the customer. As with the employee agreement, there should be a provision in the agreement stating the contractor is free from any agreements that may restrict his right to work for your company.

Always make sure that all your independent contractor agreements contain a provision that clearly states that the company owns all of the work for which the company has paid. This provision is referred to as a “Work for Hire” provision.

Paul D. Creme is an attorney with Hamblett & Kerrigan PA. His practice is focused on business and corporate law. Of particular interest are the areas of software and emerging technologies. You can reach Attorney Creme at [email protected].