Bottom Line Business Insights : Maryland Business Lawyer & Attorney : Wagonheim & Associates Law Firm : Mergers & Acquisitions & Contractual Negotiation

If you have even a remote interest in college basketball, you know the name John Wooden.  In a society in which superlatives such as "superstar" and "awesome" are thrown around with such reckless abandon as to deprive them of meaning, John Wooden truly qualifies for the adjective so often attached to his name -- "legendary." 

In his 40 years as head coach for the UCLA men's basketball team, Wooden compiled a record that included a record 38 straight tournament wins, an NCAA record consecutive winning streak of 88 games over 4 seasons, an .813 career winning percentage, and an unprecedened 10 national championships. 

In 1976, the Los Angeles Athletic Club was looking to establish the college basketball equivalent of football's Heisman trophy -- a nationally prestigious award to be conferred upon the best basketball player in the nation.  Naturally, the LAAC chose to name the award after John Wooden.  The John R. Wooden Award quickly fulfilled the visions of its founders.  John Wooden signed over the right to use his name to the LAAC, which trademarked it as soon as the ink on the contrac was dry.

In January, 2005, Coach Wooden sought to influence another group for the better by working with a group known as Athletes for a Better World to recognize an athlete, regardless of sport, for contributions outside of the game.  The award was dubbed The Wooden Cup.  The LAAC balked, citing a violation of its trademark. 

Still able to size up the opposition after so many years removed from sport, John Wooden conceded.  He recognized the superior rights of the LAAC to his own name and walked away rather than participate in what would have been a long, expensive, draining, and ultimately demeaning legal battle.  For purposes other than submitting a passport application, John Wooden had given up rights to his name...and he's not alone.

Every day, companies sign away valuable rights to their brand, logo, products, and services, thinking only of the immediate goal of the contract, rather than about the long term implications.  Considering the marketing dollars routinely spent on building a brand, these contracts are frequently nothing short of a disaster.  To lose control of one's brand is akin to opening the door of your home to a thief.  Here, however, you will be forced to watch in the light of day as the thief legally makes off with the fruits of your labor.

More than perhaps any other contract, companies must be judicious and precise when granting licenses to their intellectual property.  Oral agreements or poorly drafted written ones can haunt a business long after the short term benefits of the deal have been exhausted. 

Just ask John Wooden.

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In my last post, I related the story of how Thomas’ English Muffins successfully sued to prevent one of its key executives from defecting to a competitor.  The rationale behind the court’s decision was that permitting the executive to join the competitor could cause irreparable harm to Thomas’ business, since the executive knew key information about Thomas’ products and its business.

As a business owner, you have a vested interest in preventing your company’s customers, processes, secrets, and the like from migrating out the front door with a departing employee. Although it worked out for Thomas’ English Muffins, you shouldn’t count on a judge’s or jury’s good graces. Plus, litigation is a very expensive way to protect your company’s vital assets. Better to take care of things up front and inexpensively, rather than from the inside of a courtroom.

So, what’s the best way to do that? Get your key employees to sign Non-Compete, Non-Solicitation, or Confidentiality Agreements as part of your corporate policy, and as a condition to their (continued) employment. 

There are primarily three types of legal documents you can use to protect your business. Each has a specialized function and may be more appropriate for your business than the others. In some instances, you may need two or even all three (they can usually be combined into one master agreement). Here are the basics:

• Non-Compete Agreements: These agreements prevent key employees from working in your industry within a specified geographic area and within a specified time of their departure from your company. For example, if you’re in the business of manufacturing windows and doors, you may want to sign a Non-Compete with your top producing sales person (or people) that prevents them from working for any other window and door manufacturer or distributor within a 50 mile radius of your headquarters for 12 months after they leave your company (the geographic and time limitations should be carefully tailored by your attorney to ensure that they are enforceable).
• Non-Solicitation Agreements: This agreement prevents departing employees from soliciting your customers and your other employees to leave your company. A Non-Solicitation Agreement doesn’t prevent the employee from being in the same business after her departure (as a Non-Compete Agreement does), but rather says to the departing employee, “You can be in this business, but you can’t steal my customers or my other employees.” It often makes sense to require more than just key employees to sign Non-Solicitation Agreements.
• Confidentiality Agreements: These agreements are used to protect trade secrets, processes, sensitive company information (such as customer identities, financial information, and the like), and company plans. For example, if your company is planning to expand into a new geographic market, then you probably don’t want that information getting out to your competitors. You would require your employees with access to such information to sign a Confidentiality Agreement.

I believe that virtually every company should have one or more of these agreements in place with certain of its employees. Unfortunately, with the exception of the largest corporate enterprises, very few businesses are aware of these issues, much less what to do about them. Until it’s too late, of course. With that in mind, feel free to give me a call or shoot me an email to discuss any concerns you may have related to these issues, or any other business or legal issue that’s on your mind. I’ll be happy to answer your questions and point you in the right direction. Free of charge. And with no obligation. 

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A week or so ago, I came across a story in the legal press that reminded me of something I wish more of my clients would focus on: Non-Compete Agreements. The story was about a lawsuit filed against Chris Botticella, a former Senior VP of the company that owns Thomas’ English Muffins. It seems that Mr. Botticella had accepted a new position as a senior executive at Hostess, one of Thomas’ competitors in the baked goods space. Thomas’ sued to prevent him from taking the job, and won.

Why? Well, it seems that Botticella is one of only 7 people on the planet – yes, the planet – who knows the secret to how Thomas’ English Muffins are made. And Thomas’ certainly didn’t want him taking that knowledge to one of its biggest competitors. As a result of the court’s decision, my guess is that Botticella is going to have a tough time finding work as counter help at the corner bakery, much less as a senior executive at a large, national baked goods company.

How does a lawsuit over English Muffins relate to YOUR business? Simple:  your people are your greatest asset, and, when they leave, potentially your greatest liability. They literally have the power to make or break your business. Every business guru will tell you this, but then you’re left to your own devices to figure out what it all means, and how to protect your business’ reliance on this sometimes unpredictable asset.

Perhaps the most important way you can protect your business’ customer accounts, secrets, processes, plans, and the like from traveling to a competitor after the defection of a key employee is to require key employees to sign a well-crafted Non-Compete or Non-Solicitation Agreement.

A Non-Compete or Non-Solicitation Agreement will prevent your best sales executive (you know, the one whose accounts resulted in 68% of your gross income last year) from leaving your company for a competitor, and taking her business with her to boot. Additionally, if you’ve got any proprietary systems or technologies, it’s imperative that you protect them. Your competitors will likely pay top dollar to lure away your key sales executive, information systems guy, CEO, or key manufacturing process employee. The loss of such an employee (and your competitor’s gain of that employee) will be felt where it hurts the most:  your bottom line.  Equally as important, they are enforceable.  As recently as 5 weeks ago, Judge Richard D. Bennett of the United States District Court for the District of Maryland reaffirmed in TEKSystems, Inc. v. Bolton not only that a Non-Compete is enforceable if reasonable in scope, but also that it will be automatically extended for the period the employee is found to have been in breach. 

Do you have employees whose loss would or could have a devastating effect on your revenues or your business? If you do, or even if you’re not sure, feel free to give me a call or shoot me an email and we’ll discuss it. I’ll be happy to answer your questions and point you in the right direction. Free of charge. And with no obligation.  You can also read more about Non-Competition Agreements in our recently released Business Owner's Pocket Guide. 

In the next entry, I’ll be writing about some of the important provisions a Non-Compete or Non-Solicitation Agreement should contain, and the real effects of these agreements. Stay tuned.

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