Using a CNC to protect your business means the peace of mind that your trade secrets are safe.
If you own your own business, you know finding the right people to build your company is vital. One “weak link in the chain,” as they say, can tear a business down to its foundation. And as such, it’s not only important to hire the right people, but also protect your business from being exploited in the event a former employee might expose trade secrets. If it is your business’ practice to require a signature of an employee on a covenant not to compete, you should consider having a private investigator on retainer in order to vet any suspicions of non-compete violations.
Often referred to as a non-compete clause, a covenant not to compete or CNC is designed to protect an employer’s business against future competition or theft of trade secrets by a former employee. In essence, the CNC prevents a former employee, terminated or otherwise, from using a business’ trade secrets to either work for or start a rival business. Violators of CNC have an intimate knowledge of a particular business and can use that information to destroy it. In addition to exploiting the successes of a company by using the same strategies, a violator uses their knowledge to exploit the weaknesses of a company. They know where the vulnerable spots are in their business model, and violators can correct this process in the rival business, as well as, target their former employer in advertisements.
These legal contracts have a history going back as far as the 15th century, when English common law refused to enforce the Renaissance-era CNCs on the grounds they would place too many restrictions on trade. There have been many arguments made CNCs also interfere with America’s capitalist economy, placing restraints on the free-market standards in the United States. There are only a few states in the union completely prohibiting the use of non-competes, including California, Montana, North Dakota, and Oklahoma. One of the industries where CNCs are most common is the media. Most media-conglomerates force employees to sign CNCs at the time of hire to prevent them from sharing delicate information about media markets upon leaving their position. Another common industry is finance, especially Wall Street, where a person can literally be indicted for knowing too much, having been charged with insider-trading. Many might remember reading about CNCs back in 2005, when Microsoft and Google took a former employee, Kai-Fu Lee, to task by enforcing his CNC after leaving the company. CNCs are everywhere, and as such, businesses would be wise to employ external investigators to get the hard facts on CNC violations.
As was the case with FMLA fraud violations within a company, having an external investigator—like a PI—on retainer, will allow the company to protect itself in the event they believe a former employee has violated their CNC. The fallout from CNC violations can be ugly, with former employees insisting, not only did they not violate their CNC, but also they are being persecuted by their former employer. A private investigator is a third-party, which means they are well within their means to be objective. A private investigator’s loyalty is to the truth, as such, you can rely on cold-hard facts to bolster a case against a CNC violator. This objectivity comes in handy during litigation when enforcing a CNC.
The former employee cannot claim their employer is biased in their fact-finding, because they did not conduct the investigation. While a business can sue a former employee for violation of a CNC, it is not a criminal matter, so a business cannot ask law enforcement to investigate. Luckily, private investigators often have a resume bearing similar experience to law enforcement, as well as ,a very similar set of tools to find answers. They can locate witnesses, witness statements, videotapes, photographs, and acquire documents to build a prima facia case against a CNC violator. Whatever the circumstances, having an objective external investigator on retainer will provide businesses with the assurance they have conducted all necessary steps to safeguard their company.
CNC (Covenant Not to Compete) agreements are being breached left, right, and center as the rise of entrepreneurship continues to grow and human resource departments are feeling it. More and more people are quitting their jobs in order to become freelancers while human resource departments continue to struggle with the increasing number of unexpected losses.
COVENANT NOT TO COMPETE (CNC) AGREEMENTS
When an employee leaves a company unexpectedly it causes a lot of challenges. Traditionally, CNC agreements are signed by newly employed persons once their job position has been approved. In this agreement, there is a clause stating the employee consents to not enter or start an identical trade or profession in competition with its employer. This contract acts as a provision to prevent an unfair advantage that a former employee may have when beginning a new profession or trade.
The CNC agreement is put in pursuance of protecting the firm from confidential information being leaked about their operations, upcoming products, business practices, client/customer lists and marketing plans, just to name a few. Under this clause, the employee agrees not to create schemes with the company’s trade secrets. Depending on the exact terms of a CNC agreement, a company is also protected from the soliciting of their clients by former employees as well as the recruiting of other employees to the former employee’s competing job.
HUMAN RESOURCES DEPARTMENT
According to Entrepreneur.com, “a human resources department is a critical component of employee well-being in any business, no matter how small.” Their main responsibilities include recruitment, training and development, safety, benefits and compensation, employee relations, compliance with labor laws and employee agreements, as well as termination. Once an employee decides to depart from a firm, the human resources (HR) department’s responsibility is to update the records. If a former employee breaches a CNC agreement, it is the responsibility of the HR department to find a resolution.
What’s worse is when the person that recently quit is entitled to employee benefits as he or she is probably using that money to help in their scheme against the company. You can see why the HR department would have issues. The expected action from an employee who wishes to quit a job is to provide a standard resignation letter containing a two week’s notice. Normally, when this is the case, an employer will continue to pay the employee for two weeks while they go through their employee ending checklist.
If the employee is a threat, however, it is in the best interest of the firm to terminate their contract immediately. After which, the HR department is going to have to scramble to make a replacement while the executives delegate the extra work to the remaining employees in order to maintain a smooth workflow. Next, the former employee’s building/property access needs to be revoked, and anything within their possession belonging to the company should be handed in such as IDs, company books, cell-phones, computers, etc.
Just as more employees are leaving their companies, employers are making sure their trade names, logos, and operations are protected, their clients are secure and slanderous comments towards their company’s credibility are dealt with properly. With the help of a private investigator, companies can rest assure all proprietary information for staff lawyers and HR departments are recovered, the exposure of their trade secrets are prevented, and the purging of vendors and clientele cease.
Former employees normally capitalize on the opportunity to steal their employer’s former clients by using communication methods such as the client’s phone number or email address resulting in the company having negative credibility in the market. The most common form of CNC violation is the manipulation of clients. When there are such violations, it’s up to the HR department and the executives of the company to take action. Usually, this comes in the form of a lawsuit.
Once such case can be found on Forbes.com, Ariana Gardella speaks about Instant Technology of Chicago suing five of their former employees who left to form a competing firm called Connect Search. The reason Instant Technology wanted to sue was because they believe the former employees breached their agreement to not recruit Instant’s employees to other jobs, disclose Instant’s “proprietary” information, or solicit business from Instant’s clients.
However, when the case went to trial in 2014, the employees agreed they breached all but the non-disclosure provision agreement arguing the provisions were unfair. Unfortunately for Instant Technology, the judge ruled in the favor of the 5 former employees. After losing the case, Instant Technology appealed ending with the same ruling.
Save your HR department some time and your executives the trouble by hiring a private investigator today. Lauth Investigations International (LII) can not only help you win the lawsuit against former employees but will also work rapidly to prevent the exposure of trade secrets, the purging of vendors and clientele, and work steadfastly to recover lost credibility. LII work towards an evidentiary solution focused on a presentation of discovered facts to resolve each conflict with corporate risk solutions.
Our private investigators assist HR departments using varying investigative methods, such as surveillance, to see if former employees are setting up similar operations and using trade secrets or marketing materials and much more. Putting a stop to the scheming before it affects your company.
Even though there are limitations to some agreements, depending on the firm, such as the geographical location and time period of the departure of an employee, HR departments are still having issues with former employees breaching their contract. Fortunately, however, due to the hard work of private investigators, there has been a rise over the past decade in the number of departing employees being sued by their former employers for breaching their agreement. In fact, this number has risen by 60% over the past 10 years.
Employee departures are already bad for companies and small businesses, but what’s even worse is that as these former employees turn to websites such as peopleperhour.com and upwork.com to advertise their expertise often times violating their CNC agreements with the firm.
In order to prevent potential market downturns, it’s important to hire a private investigator who can minimize the impact of the scheming of trade secrets by surveilling former employees, conducting research on their newly formed business, and collecting evidence in order to prove a breach in the CNC agreement. Ultimately, saving you and your company time and money and allowing you to maintain great client relationships.