Protecting Trade Secrets and
Enforcing Non-Compete Agreements
by Charles H. Van Gorder

Trained and competent sales personnel are second only to customers in their importance to the survival of the outdoor retailer. Retailers often hire raw, untrained students or outdoor enthusiasts as entry-level sales personnel. They must first educate the new employee on the products sold, and then train that person how to sell products and meet the needs of customers. The economic viability of the store may depend on how well the retailer trains its sales force. But, can a retailer do too good of a job training its employees? At what point might a well-trained sales person decide to strike out on their own and open a competing business? If they do so, will they appropriate proprietary information such as your customer lists? What are the chances a successful employee will become your fiercest competitor?

Trade Secrets
Many states have enacted a variation of the Uniform Trade Secrets Act ("UTSA"). The UTSA enables employers to protect confidential information from misappropriation by employees. Protected information includes that which cannot be readily obtained from sources other that the retailer. While anyone can get names from a telephone book, it would be difficult to determine the names of individuals purchasing more than $100 in outdoor recreation products each year. That information often is readily available from a retailer's sales records, however. Protected information also must have economic value due to its confidential nature. Would an outsider pay for the privilege of obtaining and using that information? In the case of retailers, the most typical protected information are customer lists. In order to secure protection as a trade secret, the retailer must take reasonable steps to keep customer lists or other proprietary information confidential. Such steps might include labeling the lists as "Confidential" or "Do Not Copy," permitting limited access to the lists only on a "need to know" basis, and protecting access through physically locked storage facilities or password-protected computer files. Distribution of customers lists to outside sales personnel may prevent protection as a trade secret.

Non-Compete Agreements
In a non-compete agreement, an employee agrees that for a specified length of time following termination of employment, he or she will not engage in employment which will compete with the business of the former employer. Many retailers believe restrictions on employment opportunities are an illegal restraint of trade and unenforceable. That belief results in the loss of an opportunity to wield a powerful tool in protecting a retailer's business. Non-compete agreements are indeed at odds with freedom to work and make a living. Although  subject to close scrutiny by the courts, a well-drafted and correctly used non-compete agreement may prevent your best sales person from leaving your employ and competing directly with you - using your best ideas to beat you at your own game. Even if the former employee doesn't succeed, you may be dragged down as well.
In signing a non-compete agreement, an employee agrees to limit future employment opportunities. It is essential the employee get something in return for agreeing such opportunities. For new employees, the offer of employment alone may be sufficient consideration; a job now in return for an agreement not to compete in the future. The retailer needs to be careful when imposing a non-compete agreement on existing employees. If agreeing to a non-compete agreement is a condition of continued employment or training, such consideration may be sufficient. It may be safer, however, to impose a non-compete agreement at the beginning of a new season, or to give the employee a bonus in return for signing a non-compete agreement.

Non-compete agreements must be reasonable in length of time and geographic scope; they cannot be more restrictive than necessary to protect the retailer's legitimate business interests. Courts have held non-compete agreements restricting employment for an excessive period of time may be unenforceable. A reasonable length of time can vary significantly from state to state, but two or three years may be acceptable. Non-compete agreements indefinite in duration may be more likely to be struck down. Another consideration is the geographic scope of the prohibition on employment. Evaluation of this element will depend upon the nature of the particular business. Businesses with primarily local clients will not be able to enjoy protection over a broad geographic area; businesses with regional clientele may enjoy a wider scope of protection. A prohibition on working within 100 miles of the prior employer may be unreasonable, but a prohibition against working with the same county or municipality may be acceptable.

Retailers must examine closely the character of their business in an attempt to determine what restrictions on competition are reasonable. If a non-compete agreement is found the be unreasonable in duration or geographic scope, a court may limit the scope to that which is reasonable rather than invalidate it entirely. In the end run, a court may weigh the interest of the public as a whole against the potential harm to the retailer. If the former employee offers a valuable service to the public, and enforcement of a non-compete would injure the general public welfare, the former employee may not be prohibited from competing with the retailer. This could be the case where the former employer had a virtual monopoly and the public interest would be served by multiple retailers or service providers.

Enforcement
Whether it be a misappropriation of a customer list or trade secret, or a violation of a non-compete agreement, one prerequisite for enforcement is prompt action. By initiating an appropriate enforcement action promptly, the retailer will let the former employee know that the complained-of conduct will not be tolerated, and he or she must be prepared to spend good money to defend their action in court. This alone may be sufficient to discourage improper competition. Also, by moving quickly to a resolution of the problem, the retailer is acting to limit the period during which competition may damage the business, and may be less likely to have enforcement thwarted because an agreement is too long in duration. Enforcement usually pursues either of two options, injunctive relief or damages, or sometimes both.

Injunctive relief seeks to stop the former employee from competing with the retailer or using improperly obtained information. Immediate relief may be obtained through a "temporary restraining order." A "preliminary injunction" may provide indefinite relief to prevent the complained-of behavior pending the final outcome of the case. To succeed, a retailer will have to show a clear right to the requested relief. Also, there must be a imminent threat that improperly obtained information will be used, or an ex-employee is about to compete with the retailer. Finally, to obtain injunction relief, the retailer will likely have to prove that the complained-of action will substantially injure the retailer's economic interests.

An alternative to seeking injunctive relief is to sue for economic damages. In the case of trade secrets, the retailer may request reimbursement for the actual loss of profits attributable to the complained-of acts. Another approach is to deprive the former employee of the economic benefit of the misappropriated information. The UTSA specifically provides for a award of punitive damages, as well as reimbursement for attorney fees and costs if the violation was "intentional, wilful and malicious." Where there has been a violation of a non-compete agreement, the measure of damages may be the profit lost by the retailer to the competing ex-employee.

Conclusion
Retailers can prevent the theft of customer lists and trade secrets, and keep an ex-employee from unfairly competing within the same market. However, whether seeking to protect confidential information or draft a valid non-compete agreement, a retailer must obtain the advice of a competent legal advisor familiar with the status of the relevant law of the involved state. Otherwise, your protective measures may give only a false sense of security.