How to protect your alarm business from unfair competition.

KONICA MINOLTA DIGITAL CAMERARivalry among alarm business competitors might be fierce, but it also should be fair and legal.  If your confidential information such as customer lists or pricing data get into the wrong hands, it could spell disaster for your business.  As can a key employee’s departure to a competitor with all the details about your business in hand.  What can you do to protect your business’ confidential information in the first instance? And what are your options if you are subjected to competition that is not fair and legal?

First, Define and Protect What is Confidential.

Look at what information you have that you deem confidential—documents and information that you have spent time, energy and money establishing that are vital to your business, and would cause harm to you if it fell into the wrong hands.  These could include your customer lists; employee training materials; marketing strategy information; profit and sales data.

The courts will only deem information confidential when you are able to show it’s worth protecting.  So, not only must you be able to show its value, you must also show it is actually confidential.  If the information is publicly available it won’t be protected.  What often trips companies up in this regard is listing clients on their website. This can be a good marketing tool—look at how many high profile customers we have! We’re the best!—but it can also be a roadmap of your best customers for your competition to poach.  And how can you claim your customer list is a secret when you’ve publicly disclosed some or all of it?

Also, courts are going to look at what you’ve done to protect the information. Is it available to everyone you employ, or is access restricted to those that need to know it? Is the information password protected? Do you have it physically marked “confidential” or “trade secret”? If you have not treated the information like it is confidential, the courts likely won’t either.

Second, Use Non-Competition and Non-Solicitation Agreements.

Your employees are the face of your company and your greatest asset. Should they decide to leave you for the competition, however, they can also be your greatest weakness. The first legal tools in your arsenal to protect your information and your business from departing employees are non-competition and non-solicitation agreements.

Non-competition agreements are contracts where an employee agrees not to start a competing business or work for a competitor for a period of time and in a particular area after their employment ends. In determining whether to enforce a non-competition agreement, courts will look to whether it is reasonable in time and geographic area.

Time: The shorter the better as far as courts are concerned. A year or two, at the most, is more likely to be seen as reasonable than longer periods of time.

Geographic Area: The area in which the former employee cannot compete should also be limited as much as possible to an area in which competition would greatly affect the employer’s business. At the outside, this probably means no more than 15-20 miles.

Courts are reluctant to restrict someone’s ability to make a living in their chosen field, so ensure that your agreement doesn’t unreasonably prevent someone from pursuing their livelihood. The more narrowly tailored your agreement is as to time and geographic area the better.

Further, you must give your employee something in exchange for the non-competition agreement. If you are hiring a new employee, the offer of employment is enough. If you are having an existing employee sign the agreement, you’ll need to offer some consideration: a bonus, a raise, or a promotion.

Often contained within a non-competition agreement is a non-solicitation agreement, although it can stand on its own as a separate contract.   Non-solicitation agreements are contracts where an employee agrees not to solicit the employer’s customers. They are common in sales and service industries where customers are limited, or the service is not unique and competition is largely based on price.

To be enforceable, courts require that there be a valid business reason for the non-solicitation agreement. That is, the customer list must be valuable, or your business extremely vulnerable in the case of an employee exodus. Further, the customer list must be something the company has spent time, money and energy in creating and trying to protect it—again you must show the court it is worth protecting.

Remember that a non-solicitation agreement does not keep employees from leaving, or joining your competitors. But it does prevent them from soliciting your customers to compete with you.

Important: Special note to those of you in California, neither non-competition nor non-solicitation agreements are available for you. Don’t even try it, or your employee could sue you. Also, be wary if you live in Oklahoma or North Dakota, where non-competition agreements are not enforceable.

Finally, Act Immediately When the Competition Gets Unlawful

Unfortunately, not everyone behaves fairly or legally when it comes to competition. On the first whiff that a key employee, who has access to your confidential information, is leaving—whether through reliable sources or when given notice of termination—the best practice is to restrict all access to confidential information. Change passwords and take away the employee’s company-owned computer, tablet, and cell phone.

If despite your best efforts—and contract with your employee forbidding competition and solicitation—you find yourself in a situation where you have an employee who leaves and starts a competing business, or solicits your customers, you will need some outside help from a lawyer and perhaps a computer expert.

If you suspect a departing employee took your company’s confidential or trade secret information, you must start gathering the evidence immediately. You should contact your attorney and have a forensic review of the computer completed by an expert. This will document what data was downloaded, by whom, and can often recover incriminating email exchanges of confidential documents.

If you get calls from customers alerting you to the competition’s overtures toward them, get a statement from the customer detailing what happened in writing and have them sign it if they are willing. In any event keep their name and contact information and give it to your lawyer.

With this information at hand, your attack starts with your attorney drafting a letter to the employee and his or her new employer demanding that the employee cease and desist from breaching their contractual agreements of non-competition and/or non-solicitation.

If this doesn’t work, or if the breach is especially egregious, you may have to seek a court order—a temporary restraining order or a preliminary injunction. And, in conjunction, file a lawsuit against the employee, and if warranted, the employee’s new employer.   Some of the legal claims that may be available to you include breach of contract (if you have one), breach of fiduciary duty (if the departing person was an officer or director of your company), tortious interference with business relationships, deceptive trade practices/consumer fraud (if the facts warrant), and misappropriation of trade secrets. Obviously, restraining orders and lawsuits are expensive but if the facts warrant it, sometimes you have no choice.

The competition is fierce out there for alarm companies, but with the right protections you can keep your confidential information secret and your employees from unfairly and unlawfully competing against you.

© Wendy Carlisle 2015