Marlborough Business Innovation Summit

1. Marlborough Business Innovation Summit Showcasing Marlborough as a Center for Key Industry Clusters and Innovation Capacity Co-sponsored by:

2. Marlborough Business Innovation Summit Non-Compete Agreements Protecting Customer Goodwill and Confidential Information with Non-Competition Agreements: Are They Even Worth the Paper They’re Printed on? September 22, 2010 By: Bob Kilroyrkilroy@mirickoconnell.com 800.922.8337www.mirickoconnell.comWorcester | Westborough | Boston Mirick, O’Connell, DeMallie & Lougee, llp

3. Road Map • Prized Assets: Confidential Information and Customer Goodwill • Tools to protect • Non-Disclosure Agreements • Assignment of Developments Agreements • Non-Solicitation Agreements • Non-Compete Agreements • Inevitable Disclosure Doctrine

4. Road Map (continued) • How the courts in Massachusetts view these restrictive covenant agreements • Drafting tips to increase likelihood of enforceability

5. Goals • Better understanding of the legal landscape regarding non-compete agreements (attempt to remove the frustration factor) • Action steps to increase likelihood of enforceability • Better protection of trade secrets, confidential & proprietary information & customer goodwill

6. A War Story

7. Non-Disclosure Agreements Key Questions • Who should be required to sign? All employees or a subset? • What should be covered? • How long should the Non-Disclosure obligation last? • What if your employees have not signed a Non-Disclosure Agreement? Are you still protected?

8. Case Law & Statutory Protection

9. Case Law & Statutory Protection (continued) • MA Supreme Judicial Court: Employees have an implied obligation not to use trade secrets or other confidential information for the benefit of themselves or a competitor, if it would be to the detriment of the former employer.

10. Assignment of Developments Agreements • Designed to protect intellectual property • Obligates the employee to disclose inventions • Requires assignment of inventions to the company

11. Assignment of Developments Agreements (continued) Key Questions: • Who should be required to sign? • What about developments already “in-the-works” when hired? • What about inventions shortly after departure?

12. Non-Solicitation Provisions • Customer Non-Solicit • Duration of restrictions? • Which customers • Employee Non-Solicit • No Hire vs. Non-Solicit • Duration of restriction? • Reach back clause • Should all employees sign?

13. Non-Compete Agreements The Basics • Enforceability varies greatly by State (e.g., CA, TX, GA, VA) • Must be limited to protection of legitimate business interests • Trade Secrets • Confidential Information • Customer Goodwill

14. Non-Compete Agreements (continued) The Basics (continued) • Must be reasonable in duration and geographic scope • Must offer valid consideration to employee when signing

15. Non-Compete Agreements in Massachusetts What constitutes valid consideration? • Can at-will employees be required to sign? • What if you didn’t require signing at time of hire, but want to do so now? • What happens if an employee is promoted? • What if an employee receives a pay raise? • What if an employee has a material change in job duties?

16. Non-Compete Agreements in Massachusetts (continued) • For how long after employment ends should a former employee be restricted from competing? • Can you restrict him/her worldwide? • Customer-based vs. Geographic-based Restriction • What if the Court finds that your Non-Compete is overboard? • Invalidate, Blue Pencil or Modify?

17. Non-Compete Agreements in Massachusetts (continued) • Should all employees be required to sign? • What if an employee refuses to sign? • Play hardball? • Negotiate a less restrictive agreement? • Pay to keep the employee on the beach?

18. Non-Compete Agreements in Massachusetts (continued) • The danger of selective enforcement • The costs of careless drafting • Will the Agreement survive a merger? • What if an employee jumps ship to a competitor, but never signed a Non-Compete Agreement?

19. Inevitable Disclosure Doctrine • Established, but not firmly established, in Massachusetts • Need near-identical job duties and responsibilities • Typically need to show that employee cannot be trusted. He/she will inevitably rely upon, use or disclose the employer’s confidential information.

20. Key Components of a Comprehensive Agreement • ID protectable interest (Customer Goodwill, Confidential Information) • Access contingent on entering into Agreement • Broadly define Confidential Information

21. Key Components of a Comprehensive Agreement (continued) • Assignment of Developments • Duty to disclose • Presumption of ownership by Co. • Assignment to Co. • Carve-out for pre-existing inventions • State specific language (CA, DE, WA, IL, KS, MN, NC, UT) • Non-Disclosure provisions • Indefinite • May not take/rely upon/use/disclose

22. Key Components of a Comprehensive Agreement (continued) • Non-Compete provisions • Reasonable geographic & durational scope • Customer-based scope • Tailored to the individual • Non-Solicitation of Customers • Proper scope & duration • Tied to direct contact and/or customers for whom the employee had access to Confidential Information

23. Key Components of a Comprehensive Agreement (continued) • Non-Solicitation of Employees • Specify duration • Reach back clause • Return of company property provision • Affirm the At-Will relationship • Assignability provision • Right to Injunctive Relief • Arbitration Clause? • Choice of Law & Venue

24. STATUS OF LEGISLATIVE EFFORTSTOERADICATE OR RESTRICT NON-COMPETEAGREEMENTS IN MASSACHUSETTS

25. Legislative Proposal • Efforts are dead for now, but are expected to be revived • Key Provisions Being Pursued: • Not valid for employees with average gross income of <$75K • Must provide copy at least 7 days prior to start of employment or with offer letter, whichever is earlier

26. Legislative Proposal (continued) • Key Provisions Being Pursued (continued) • If signed after start of employment, need additional consideration – at least 10% of annual compensation • Limited to duration of 1 year, except for garden leave (greater of 50% of base salary or $50K) • 6 months is presumptively reasonable

27. Legislative Proposal (continued) • Key Provisions Being Pursued (continued) • Mandatory awarding of attorney’s fees to employee if court declines to enforce or alters the restriction in a material respect, or if court determines bad faith by the employer • Discretionary awarding of attorney’s fees if court enforces as is and finds employee acted in bad faith • Massachusetts Choice of Law for residents and those working in Massachusetts when terminated

28. Questions?