Friday, January 9, 2015

10 Checklist Items for Every Employee Who Leaves to Compete

The dawn of the new year is always a good time to return to basics.

When consulting with individual employees, it amazes me how frequently I run through the same basic departure protocol. By now, this seems intuitive to me. But I realize that for clients it is anything but.

I can't overstate the importance of carrying out a good, clean departure, even if the end of the employment relationship is fraught with hard feelings. Most employee competition lawsuits that go sideways have at their core a common thread: a sloppy, hastily-planned exit. The general perception that an employee violated some basic business ethic on the way out the door can convert an otherwise weak plaintiff's case into one that is able at least to persist through discovery and perhaps trial. That, in and of itself, may be a net loss to an employee who is usually less able to fund a legal defense.

The following list describes ten crucial departure steps employees must take to reduce risk in the event of a competition suit. This is by no means exclusive, and I don't present this in order of importance.

10. Get your agreements in order. I believe well over half of employees now have signed something that potentially affects post-termination conduct. In many cases, the pertinent document could be just a form non-disclosure agreement, which would pose no true restriction on taking a new job. But increasingly, employees sign more extensive non-compete or non-solicitation agreements. For a recent article discussing the proliferation of non-competes, see the linked AP story from January 3 ("Scrutiny on Worker Non-Compete Deals" by Ray Henry). Employees must obtain all relevant agreements, including those they believe to be outdated. It's also important for those employees with restricted stock or stock options to obtain any award agreements, as they frequently contain restrictions or forfeiture-for-competition clauses. An attorney cannot advise a client who is unprepared. Unsigned agreements and similar agreements that co-workers once had is only marginally helpful.

9. Prepare your resignation letter. At some point, an employee who makes the choice to leave and compete should prepare a resignation letter. Even if this seems like a mere formality, a resignation letter could be an exhibit at a trial. And a carefully crafted letter will give the court evidence that the employee was, indeed, careful. A judge can perceive this as a window into an employee's mindset before litigation begins. There are three general rules for drafting a resignation letter: (a) keep it short but articulate; (b) be respectful and thankful for the opportunity; and (c) if you state a reason for departure, be clear but deferential. An employee should have counsel review any resignation letter before delivering it.

8. Return all business documents. My experience is that about 2 out of every 3 employees keeps some non-public information when leaving, even if inadvertently. In many cases, retaining confidential documents is the factual foundation for an employer's case that otherwise might founder from the start. When an employee thinks about leaving, she should make sure to gather all documents (yes, including those at your "home office") and even create an inventory of what she returns. To take it further, employees should make sure those documents are organized and not returned in a scatter-shot fashion. This will show a court that the employee was trying to act respectfully and in good faith during the departure process.

7. Inventory electronically stored information. Closely related to point 8, employees often mar an otherwise clean departure by failing to account for electronic information. This presents a particularly acute problem for the increasing number of employees who work from home. Typically, digital information resides on a personal laptop hard-drive, an external thumb drive, a cloud storage platform, or in personal e-mail that continues to be accessible past resignation. During any competent exit interview, a manager or human resources professional will ask whether the employee has deleted or returned electronic information. A common question employees have is how to "return" electronic information. My pat advice usually is to have the employee disclose all facts about where the electronic information sits and ask the company specifically how to handle any deletion or return of documents. As long as the employee does this, any technical difficulties should be easy to work through.

6. Assess terms of new job offer and proposed employment agreement. Employees frequently become enamored with the idea of a new and better job opportunity. So much so, in fact, that they often forget about what they will have to sign when starting. This is relevant for the obvious purpose that the new job may require a non-compete. But it's doubly relevant because the new hire documents can help frame a lawsuit or the response to a cease-and-desist letter. It is vitally important that the offer letter contain language that respects the enforceable agreements of competitors, ensures that the company is hiring the employee for her general skills and knowledge (and not any proprietary information of competitors), and that failure to abide by these rules will result in termination. If the employee must sign a new agreement, those same admonitions should appear in the agreement as well. Many lawsuits sputter out of the gate if a judge sees that the new employer has no need to compete unfairly and in fact prohibits it.

5. Accommodate exit interview requests. Leaving a job is not easy. Personal emotion becomes wrapped up with professional obligation. And on this score, it's relatively easy for employees to want to bail out on proper protocol, because sitting down to notify a manager that they're leaving is not the easiest thing for the average person to do. However, it is essential to go through the painful exit interview process. For one, it may be contractually required, depending of course on what the employee's agreement or corporate handbook says. Secondarily, it always looks bad if an employee refuses to sit for an exit meeting. That can at least raise the inference the employee intends on hiding unfairly competitive conduct. On the flip side, if the employee is candid during the interview process, she may gain helpful facts to use in defending a subsequent action. The most important fact is participation itself; if the employee goes through the process and participates in good faith, this moots a potential employer line of attack at trial. More dramatically, I have represented clients who have participated in exit interviews and been told by managers that their new job would not be a non-compete violation. I have even seen follow-up e-mail communications that confirm these discussions, only to have the employer reverse course down the road. Another common fact that arises because of an exit interview is the employer's lack of diligence with gathering business documents. Those sorts of facts are game-changers. And they only arise because the employee participated in an exit interview.

4. Establish the new employer's expectations. As part of the hiring process, the employee must have a clear understanding of her anticipated job responsibilities. This is essential so the employee can determine whether the new employer expects her to abide by the restrictive covenants or whether it has another goal in mind. Too often, I have seen employees who are asked to "thread the needle" once they start. They then face the Hobson's choice of violating a post-termination covenant or ignoring an assignment.The employee must be on the same page with management regarding the day-to-day expectations, and in particular how to address the difficult, close issues (such as servicing a common client or working with clients who arguably fall within the territorial scope of a non-compete).

3. Work loyally to the end. I normally tell my employee clients to make their last month at work their best. This is relatively hard to do, but it is nothing more than common sense. An employee who neglects clients, shows up late, and ignores office meetings is likely to be viewed as untrustworthy. It also may cause an employer to file suit, or at least threaten suit, when it otherwise wouldn't have. Employees are often surprised at how much goodwill they can buy just by acting like a grown-up. A lot of employees simply don't.

2. Hire counsel early. Finding a knowledgeable, trustworthy attorney is no easy task. An employee is best served by hiring a lawyer early, during the phase of a job search where a move becomes real. This frequently occurs when an employee has a hot lead on a job. It never hurts to get a legal assessment before that, but counsel needs some understanding of the new position to advise the employee fully on her exposure. Waiting to seek counsel until after the employer sues means the attorney can't help shape the "job transition" facts, many of which I've outlined above. He or she is stuck with a departure that the employee may have planned hastily.

1. Expect the unexpected. It continues to amaze me how badly employees can predict what will happen upon departure. The accuracy of their predictions seems to be inversely correlated to their confidence. The bottom line is you rarely can predict whether an employer will sue. Nor can you count on a manager "going to bat" for you. And sometimes employers act irrationally, seemingly oblivious to the fact that customers may react poorly to being thrust into a lawsuit. Competition suits take on a life of their own (at least for a while), and they often are clouded by poor judgment.


Those readers who find this post informative may want to check out a related post I wrote on May 31, 2013 titled The Employee's First Client Meeting.

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