Category: Restrictive Covenants

Protecting Trade Secrets: Confidentiality and Restrictive Covenants in Employment Agreements

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Our Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Can Protect Your Business and Trade Secrets

Trade secrets are the lifeblood of any business, but what happens when an employee leaves your company and takes your trade secrets with them? This is where confidentiality and restrictive covenants in employment agreements come into play.

Defining Trade Secrets

A trade secret is any information that is not generally known or readily ascertainable by others, that gives your business an economic edge over competitors or customers, and which you have taken reasonable measures to keep secret. Examples of trade secrets could be a unique process, a formula, a method, or a compilation of information.

However, not all confidential information qualifies as a trade secret. Ordinary business information, such as customer lists, pricing information, or marketing plans, may not qualify as trade secrets unless they derive independent economic value from not being generally known.

Confidentiality Agreements

Confidentiality agreements, or non-disclosure agreements, are legal contracts between an employer and an employee that restrict the employee from disclosing confidential and proprietary information. These agreements are essential for businesses to protect their trade secrets.

For instance, consider a Philadelphia-based software company that has developed a unique algorithm, giving it an edge over competitors. The company would have its employees sign a confidentiality agreement to prevent them from revealing this algorithm to anyone outside the company, thus protecting its trade secret.

Restrictive Covenants

Restrictive covenants are clauses in an employment contract that limit an employee’s actions during and after their employment. These typically include non-compete clauses and non-solicitation clauses.

A non-compete clause prevents an employee from working for a competitor or starting a competing business for a certain period after their employment ends. For example, a coffee shop owner in Philadelphia might include a non-compete clause in their employment contracts to prevent employees from opening their own coffee shops in the city within two years of leaving.

A non-solicitation clause prevents an employee from soliciting an employer’s clients or customers for their own benefit or another company’s benefit. This could protect a Philadelphia-based marketing agency from former employees luring away its clients.

The Importance of Protecting Trade Secrets

Your trade secrets are the unique elements that distinguish your business from the competition. They are the proprietary knowledge, techniques, and processes that give your business an edge in the marketplace. These trade secrets are invaluable assets, whether it is a secret recipe, a specialized manufacturing process, or a unique marketing strategy.

When these trade secrets fall into the wrong hands, they can severely compromise your business’s market position. Competitors could replicate your products or services, undercutting your unique selling proposition. This could lead to lost sales, reduced market share, and a significant decrease in your business’s value.

The loss of trade secrets can also damage your business’s reputation. Customers and clients entrust businesses with their information and expect them to protect it diligently. If a business fails to protect its trade secrets, it could raise questions about its ability to safeguard other confidential information, losing trust among customers and stakeholders.

The legal repercussions of failing to protect trade secrets adequately can be severe. Businesses may face lawsuits for negligence or breach of contract, resulting in costly litigation and potential financial liabilities.

Implementing robust measures to protect trade secrets, such as confidentiality agreements and restrictive covenants, is not just a good business practice but an absolute necessity. These protective measures form a line of defense against potential threats, ensuring that your trade secrets remain just that—secret.

Our Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Can Protect Your Business and Trade Secrets

As a small business owner in Philadelphia, you should consider seeking legal counsel to help draft and review these agreements. At Sidkoff, Pincus & Green P.C., we are committed to helping businesses like yours navigate the complexities of trade secrets, leaning on our extensive experience to assist you with this critical aspect of your business. If you need guidance on protecting your company’s trade secrets, speak with our Philadelphia business lawyers. Complete our online form or call us at 215-574-0600 to schedule a consultation. Located in Philadelphia, we serve clients in Pennsylvania and New Jersey.

Pennsylvania Supreme Court Considers Validity of Noncompete Agreements

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Are restrictive covenants enforceable regardless of when they are signed? The Pennsylvania Supreme Court has heard argument on this question in Rullex Co. v. Tel-Stream. Existing case law does not clarify whether restrictive covenants are enforceable if they are executed after the parties start working together.

Rullex is a telecommunications construction company and Tel-Stream is a subcontractor that provides labor crews to businesses that service cellular towers. Rullex filed its lawsuit against Tel-Stream alleging that Tel-Stream breached the restrictive covenant by doing work for a competitor of Rullex. The Philadelphia Court of Common Pleas ruled in favor of Tel-Stream and rejected Rullex’s  petition for injunctive relief. Rullex appealed the ruling but the Pennsylvania Superior Court affirmed the trial court, holding that the noncompete agreement was not enforceable because it was executed after Tel-Stream had been hired and was already working on projects. Rullex then appealed to the highest court in Pennsylvania, the Supreme Court of Pennsylvania.

In its latest appeal, Rullex asked the Pennsylvania Supreme Court to change the current law  that requires a non-compete clause to be executed at or before an employee or contractor begins working, and if it was signed later, the courts would not enforce it. Under the new law that Rullex has asked the Supreme Court to adopt, if  a company merely advised the employee or contractor that some time in the future it would require a signed non-compete agreement, and if in the future, long after the employee or contractor had been working on the job it did sign the non-compete agreement, the company would be able to enforce it.

Gary Green of Sidkoff, Pincus & Green P.C., who represents Tel-Stream, fought the request for the Supreme Court to make a new rule and argued to the Court  that based on the evidence and record made in the lower courts before the case reached the Supreme Court, there was no agreement by Tel-Stream when it began to do its work for Rullex that at some future date, Rullex would be able to demand that Tel-Stream be bound by a non-compete clause.  Mr. Green contended therefore  that there was no enforceable agreement for any restrictive covenant.

Philadelphia Employment Lawyers at Sidkoff, Pincus & Green P.C. Provide Skilled Representation in Matters Regarding Restrictive Covenants

If you have questions about the legality of restrictive covenants in your employment contract, contact the Philadelphia employment lawyers at Sidkoff, Pincus & Green P.C. today. Call us at 215-574-0600 or fill out our contact form to schedule an initial consultation. We provide skilled representation to clients throughout Pennsylvania and New Jersey from our Philadelphia office.