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Related Articles: Business Law/Commercial Landlord/Litigation
This article
is intended to provide general information on Virginia law, and is not intended
to be relied upon as a substitute for legal advice for specific situations. The
contents of the article may be out-of-date, since it was produced at a specific
time and may not have been updated.
Employees: Duty of Loyalty
Your top salesperson has just given you a two-week notice
of resignation. When you discuss this problem with another
employee, you learn for the first time that your top salesperson
has already set up a competing company based upon copies of
your files and solicitation of business from your clients.
To compound the problem, several of your key personnel quit
within days of your top salesperson; you learn that they are
joining this new competitor. What can you do? Well, a recent
case in the United States District Court for the Western District
of Virginia may provide some help.
In National Legal Research Group v. Latham, the court,
in an unusual ruling, enjoined a former employee from soliciting
or communicating with clients of the firm for two years after
resignation. Furthermore, the former employee was charged
with actual damages caused to the former employer, as well
as punitive damages, even though the offending employee had
no written contract. This case could be a significant aid
to employers seeking to enforce the so-called "Duty of Loyalty"
that binds all employees.
Non-Competition Clauses
Of course, sales people should sign employment agreements
containing restrictive covenants, which prevent them from
copying confidential materials or competing upon termination
of employment. However, such covenants are rarely executed
because of the fear that excellent employee candidates may
refuse employment on this basis.
To be enforceable, Virginia law generally requires that non-competition
clauses be reasonably necessary for the protection of the
employer, and not impose undue hardship on the employee. If
the clause prevents the employee from competing in a limited
geographical area or for a limited period of time, a court
will generally uphold the agreement. If the clause has no
such limits, courts will often find the restriction to be
impermissibly overbroad and unenforceable. Since non-competition
clauses are, in general, a restraint on free trade, a court
will carefully examine the agreement and construe the clause,
where possible, in favor of the employee.
Duty of Loyalty
Despite the failure to include a restrictive covenant in an
employment agreement, the law implies an agreement on the
part of the employee to faithfully serve an employer. In addition,
an employee is a fiduciary with respect to information learned
during the course of employment.
Virginia Trade Secrets Act
The Virginia Trade Secrets Act, Virginia Code §59.1-336 may
prevent former employees from using information for which
the company took reasonable steps to keep secret. This Virginia
Code Section was the basis for the court's ruling in the National
Legal Research Group v. Latham case.
Protect Yourself
Restrictive covenants in employment agreements are the best
method for protecting your trade secrets and preventing competition
from former employees. Nevertheless, you may have a case under
the Virginia Trade Secrets Act if you take reasonable steps
to protect your important trade secret information. Establish
written procedures: inform your employees of what materials
are considered protected and under what limited circumstances
these materials may be utilized.
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