Beware of These Traps in Employment Agreements

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When you’re jumping from one company to another—especially if you’ve been poached by a competitor of your current employer—you need to negotiate carefully. If you don’t navigate the process well, you might just find yourself on the losing end of a lawsuit.

The idea shouldn’t be surprising. Technology’s a strategic asset and those that spend their days immersed in a company’s IT have access to some of the business plan’s core components. Organizations are likely to have software and hardware engineers, programmers and Web developers—in addition to the CIOs and CTOs—sign non-competes and non-disclosure agreements when they accept a job offer.

If you’re in such a role and privy to sensitive information, your employer has good reason to worry that you’ll reveal proprietary information to a new company. It’s common for technology employers to safeguard against the misappropriation of their confidential information, client or customer lists—and anything else that provides them with a competitive edge in their industry.

What to Expect

Employment agreements are pretty standard in the IT world, says Carlos Becerra, an associate with Irvine, Calif., law firm Tredway Lumsdaine & Doyle. They usually define job responsibilities, compensation and the legal rights of the parties involved, in addition to non-compete and confidentiality terms. These last two may be written up as separate documents, or be rolled right into the overall employment agreement.

It’s important to understand that the weight of restrictive covenants can vary from state to state. Some states restrict the type of information that can be called confidential, for example. And in some jurisdictions, such as California, non-competes usually aren’t enforceable.

Signing a Representation

The documents you’ve signed with your current employer are going to be important to your new company. They’re likely to ask about the terms of hiring at your old job, usually to make sure you’re not subject to—or that they understand the restrictions of—a non-compete. One way to accomplish this is to ask the new employee sign a representation that he or she is not subject to any restrictions on competition “or other contractual limitation on his or her ability to do the job,” says Melissa Silver, legal editor for XpertHR, an information provider on employment-related law.

If you’re subject to such a covenant, an employer is likely to ask for a copy so its lawyers can scope out the risk involved in bringing you on. Says Silver: “If the employer doesn’t request this information from an employee who is subject to a restrictive covenant, the former employer may not only sue the employee, but also the new employer based on the theory that it wrongfully interfered with the employee’s contract with the former employer.” In other words, the new employer wants to know what it’s getting into.

Watch Out for Lawsuits

If a competitor is dangling an offer in front of you, Becerra says to be careful. Make sure that what they’re looking for is your talent and not any information they can pump out of you about your old company. Otherwise, both you and your new employer are likely to get sued. Also, the information doesn’t have to be used in the job itself, adds Silver. If you reveal any confidential information during the hiring process, even if you don’t get the job, you could still be in trouble.

Lawsuits related to NDAs, non-competes and proprietary information can be very expensive to litigate. “Most often, the people involved will settle before it gets to court,” says Becerra. Typically, the employee will sign a confidentiality agreement involving the settlement and the information in dispute. Whatever happens, you’re likely to lose your new job if things get this far.

Of course, all of this complicates your subsequent job search, since you’ve got to figure out how to explain your short stint at the new employer, without revealing information restricted by the settlement. On the other hand, you don’t need to worry much about your former employer dishing the dirt about the terms of your firing: Most companies, Becarra observes, are pretty closed-lipped about anything that’s happened with former employees.

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