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Restrictive Agreements for Founders

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Restrictive Agreements for Founders

Postby Pinskylaw.ca » 01 Aug 2013, 13:14

A troublesome area occasionally arises where a founder has previously entered into an employment agreement, a confidential data agreement, or an invention and secrecy agreement with a former employer that restricts the ability of the founder to engage in the new venture's business or technology. On the other hand, employment agreements between founders and their previous employers have usually been terminated by the time the venture is formed, either by expiration or by specific agreement, and usually don't present a problem to the new company unless some holdover covenants prevent or restrict the founders' ability to engage in a competing business. Such provisions may be unenforceable in certain states by virtue of statutes or case law.

Invention agreements may exist pursuant to which the founder may have assigned patentable inventions to the former employer. A patent lawyer should review such agreements to determine whether such restrictions will prevent carrying on the new business as planned. Confidential data agreements with previous employers should also be reviewed to ensure that no trade secrets or other proprietary information belonging to the former employer will be wrongfully utilized by the new firm. Use of general technical or marketing knowledge, even where gained over the course of one's former employment, cannot usually be proscribed by the former employer; on the other hand, special technical know-how which is not generally known in the industry may be protectable by the former employer.

The statutes and courts of many provinces encourage mobility of technical employees from one employer to another. Accordingly, the courts attempt to balance the two public interests: that of maintaining mobility of technical employees and that of protecting the legitimate trade secrets of former employers. In some cases it may be advisable to approach the former employer and negotiate some release, cross-licensing agreement or other arrangement that protects both parties and prevents disputes later on.

Some restrictive employee agreements prevent the employee from soliciting customers or key employees of his or her former employer. These may be unenforceable in certain states. In other states such restraints are permitted by the courts if reasonable. Customer lists may be protected where the customer information is not generally known in the industry and can be learned only in the course of the employee's employment. Similarly, restrictions against soliciting other employees to leave and join the new company may be tempered by the province's interest in permitting mobility of employees.
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