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TECHWORKPLACE by Jeffrey L. Berger, Esq. Jeffrey L. Berger specializes in management-side employment and business law, and related litigation in Washington, D.C., and nationally. Questions and comments on the TECHWORKPLACE are encouraged.  Other articles are available at www.bergerlaborlaw.com. EMPLOYMENT CONTRACTS IN THE FAST LANE

Concerned calls from high tech executives to employment law attorneys lately follow three related patterns: 1) the executive wants to set up his own company and take other employees, 2) a key employee is about to join a competitor, or 3) the executive has just been "asked to resign." The attorney’s first question is likely the same: Is there an employment contract and what does it say about competition, confidentiality, and ownership of intellectual property? Given the growth and change rate in the high-tech industry, and the rapid mobility of its employees, misunderstandings over these employment-related rights are spawning increasing disputes. Many companies, especially start-ups, complicate matters by adopting employment agreements borrowed from friends, other employers, or form books. Many employees simply sign these contracts at orientation sessions with the same level of thought given to their W-4 forms.

A comprehensive employment agreement can be viewed in three phases: 1) what the employee brings and may not bring to the relationship, 2) the rights and obligations of the parties during employment, and 3) the rights and obligations when employment ends. In the entry phase, the new employer should make sure there are no existing restrictions on the employee from non-competition, trade secret, or other obligations. A new employer may be held liable for contract interference and related violations if it hires or uses information from an employee restricted by a former employer’s contract. The new employer should require an employee to declare whether she owns any inventions or ideas, as the employer will want to own anything she produces concerning the business.

During the employment phase, employers should have employees disclose and assign all business-related inventions, ideas, and rights. Most companies will want employees to protect confidential information, as an employer must retain and enforce confidentiality requirements to be entitled to protection by trade secret laws. The scope of what is protected is the source of frequent litigation, due in part to the shotgun approach to confidentiality in many employment agreements.

The true test of an effective employment agreement comes when it is time to part ways. If the employer had the leverage to hire on an at-will basis, disputes over firing are minimized. In high tech, however, professionals and executives often have the leverage to obtain the right to severance and vesting of options, unless they are fired "for cause." Equally important is ownership of various rights, the restriction of which can significantly affect the employer’s ability to protect its business and the departing employee’s right to work. Included are the former employee’s ability to compete with, hire employees, solicit customers, or use confidential information of the former employer. Contrary to popular belief, properly drawn non-competition and related restrictions are enforceable, particularly in IT, bioscience, and other industries dependent upon employee ideas and knowledge. Departing employees, and especially executives and professionals, are frequently shocked to find that the employment agreement they signed without thinking when hired restricts them from working in their chosen industry. Moreover, even where an agreement is unclear, litigation over competition and related issues can effectively chill a former employee’s ability to work or start a new venture.

A recommended New Year’s resolution for employers and employees alike: read your company’s employment contract. You may be pleasantly surprised or shocked, depending on your plans in the new millennium.  

© 1999 Jeffrey Berger

REPRINTED FROM:
TECHGAZETTE - December 1999, Vol. 2, No.12
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Legal advice is case specific and is not intended to be provided by this article.    The Berger Law Firm, P.C. may not be held responsible for any consequences that may arise in connection with the use of or reliance on the information provided.