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This article by Melinda Sherwood was published in U.S. 1 Newspaper on November 10, 1999. All rights reserved.

Non-Competes For All

An employer’s greatest fear is that his or her right

hand man or woman walks out of the office with company secrets and

heads straight for the nearest competitor. Most companies have taken

adequate precautions in the form of employee contracts to prevent

that from happening, but in today’s start-up world, everyone is a

possible traitor, says Jedd Mendelson, an attorney at Grotto

Glassman and Hoffman at 75 Livingston Avenue in Roseland. "Employers

would be foolhardy if they did not make it practice that lower level

people have an employment agreement — not what the salary is,

but that they not go to competitors," he says. "Internet start-ups

may have a person for six months. Then they walk out with a lot of

intelligence about how a company is formulating its business plan."

Noncompete contracts for all is one way employers can protect their

sensitive information, says Mendelson, one of speakers at "Managing

the Risks of Employee Litigation," a seminar offered by Grotta

Glassman and Hoffman on Tuesday, November 16, at 8:30 a.m. at the

Woodbridge Place Sheraton in Iselin. The seminar covers everything

from harassment to disabled employees. Call 973-992-8400. Cost: $75.

Employers typically reserve the "noncompete" contract for

upper level executives, but in the contemporary business world, power

is not always at the top of the pyramid, says Mendelson, a principal

at the Grotto firm for the last nine years. "From an employee’s

perspective, why deprive yourself of the opportunity to exploit your

own talent and information?"

Mendelson cites the common example of a scientist who suddenly asks

"why the hell am I working for this guy?" and then leaves

with all the company’s knowledge assets in his head to start his own

company. "A noncompete would preclude him from doing exactly that,"

he says. "With all this E-Commerce and speed with which things

happen today, employers really need to think about what information

is sufficiently important that they want to truly insure that their

personnel do not take it with them or utilize it competitively against

them."

Mendelson grew up in Brooklyn, where his father spent 49 years working

in the state’s department of auditors. A family friend tipped him

off to Cornell’s industrial and labor relations school, where he received

his BA in 1979, and from there he went to University of Michigan for

a law degree. He now lives in Montville with his wife and two children.

"In the E-Commerce world, everyone is so intricately involved,

that as a proprietor you’d be a fool not to bind someone down,"

says Mendelson. When drawing up a standard employee contract, he advises

employers:

Stretch employee covenants to the entire work force, not

just top executives.

Delineate your top competitors in the contract rather

that generalize. Don’t just bar employees from working at any competing

company. It won’t hold up, says Mendelson. "I’ve seen judges who

say I can’t stop this employee from practicing their trade," he

says. "Judges will look for a hook to let them off, but they will

enforce those covenants when it is apparent that an employee will

share information with a competitor about a former employer."

Be specific about which competitors pose a significant threat so that

you can make a case. "If the wayward employee says `I have to

make a living,’ you can say `but your honor, he can go to many other

companies.’"

Update contracts at the "speed of business." "In

the Internet business, the top five competitors are going to change

a year from now," says Mendelson. Employee contracts should be

amended to reflect the changing business landscape so that "it’s

sort of a living organism."

Don’t blow hot air. The attitudes about security expressed

in the contract should be reiterated in the office. "Don’t put

everything under the sun in the contract but fail to treat that information

as confidential in your business setting," says Mendelson.

Also, be on your best behavior. Courts typically won’t enforce

a noncompete agreement if a person was fired or if there was a hostile

environment in the workplace, says Mendelson.

Given the speed of business, how long can employers legally expect

to bar employees from working for a competitor? Anywhere from two

to five years was acceptable in the bricks and mortar world, but "in

the Internet world, 18 months is an eternity," says Mendelson.

In the fast moving world of the Internet, the courts might look askance

at unreasonable long noncompete contracts. Says Mendelson: "It

hasn’t been litigated yet."


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