Sam Diehl,
Gray Plant Mooty:
612.632.3095
sam.diehl@gpmlaw.com
Mark Mathison
312.632.3247
mark.mathison@gpmlaw.com
www.gpmlaw.com
Newspaper fight
holds lessons for
protecting business
A HEATED COURT battle between big-city newspapers took place last year when the publisher of the Saint Paul Pioneer Press, Par Ridder, left to take the same position with the Minneapolis Star Tribune.
The papers are intense competitors. Before leaving the Pioneer Press, his bosses said, Ridder had signed a noncompete agreement with it. When he left, he took with him a laptop full of data, including advertiser lists and ad pricing.
In the end, a Ramsey County judge held that his noncompete was unenforceable, but still ordered Ridder not to work for the Strib for a full year, and to never disclose the Pioneer Press’s confidential information, significantly handicapping the Strib’s business plans.
The judge also required the Star Tribune to pay $5 million to cover the Pioneer Press’s attorneys’ fees in the litigation. Ultimately, the papers settled and Ridder resigned.
The dispute holds lessons for Minnesota’s business owners. Minnesota businesses frequently face similar, if less publicized, conflicts with departing employees.
This ruling makes it more clear than ever that a noncompete agreement is but one, and perhaps not even the most useful one, of a variety of legal tools that businesses can use to protect their competitive advantage.
Virtually all of these tools require planning and strategizing by employers in order to be used effectively at a critical time. And because the shoe can be on either foot, employers should also adopt clear practices and policies to ensure that new employees honor duties to former employers.
Employers’ rights
Minnesota employers have rights created by the legislature and judges, in statutes and case law, that help protect against unfair competition in such situations. Employers can take action against former employees to obtain money, restrictive court orders, and sometimes recovery of legal fees. But these rights are most effective when used in conjunction with well-developed business practices, policies and legal agreements.
Minnesota’s Uniform Trade Secrets Act (UTSA) is a prime example of a statute that affords businesses significant protection against unfair competition. UTSA prohibits an employee from using or disclosing to others a business’s proprietary information. But the statute only applies to information that “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Common law claims can also be useful to protect against unfair competition from former employees. Such claims can include:
Wrongful interference with a business relationship: Employees are prohibited from intentionally interfering with their former employer’s business relationships.
Unjust enrichment: Employees cannot unfairly benefit from information or other resources gained from a former employer.
Breach of fiduciary duty: Employees have legally enforceable duties, including loyalty, reasonable care and obedience to their employer.
Contracts and policies
Employers often overlook effective options other than noncompetes that might be used to protect their business interests. Enforcing non-compete agreements is almost always an uphill battle. A noncompete must be reasonably limited in scope and the employer must prove the employee received something of value in exchange for it. The lack of such a bargained-for exchange was the reason the judge did not enforce Par Ridder’s noncompete.
Restrictive contract agreements other than noncompetes are less difficult to enforce. For example, a non-solicitation contract need only be “reasonable under the circumstances,” and can prevent a former employee from stealing customers or other employees. Some of the best alternatives to noncompete agreements include:
- Non-solicitation: An agreement, or provision in an agreement, that prohibits employees from contacting customers or hiring their former coworkers.
- Non-disclosure: Note that while such confidentiality agreements often don’t actually increase the UTSA and common law protections, they function to provide an employee a clear idea of what is considered confidential and how the employee should treat such information.
- Non-disparagement: An agreement that forbids employees from bad-mouthing the former employer to customers or others.
Other steps that employers should consider taking to protect against unfair competition from departing employees include:
Limit access to valuable information to those employees with a need to know and strengthen IT and physical security.
Use a variety of methods to remind all employees of their duty to keep selected information confidential (including reminding departing employees in writing).
Use written agreements to contract with employees for non-disclosure, non-solicitation and other promises that will best protect the business.
Be prepared to act quickly to protect interests when necessary.
Employers should also take advantage of measures that can limit the cost of litigation or prevent it altogether. Potential new employees should be asked to disclose in writing any restrictive agreements or duties they have with their former employer that might continue to limit their business activities.
When an employee departs who has had access to important customers and sensitive information, the employer should send a reminder letter to the employee – and in some cases to their new employer – noting the continuation of such obligations. And once an employer believes a former employee has crossed the line into unfair competition, breaching an agreement or violating other legal restrictions, action such as a ‘cease and desist’ letter or a phone call may suffice to clear up a misunderstanding.
The main lesson of the recent newspaper wars is that ultimately employers can protect themselves from disloyal employees. Well-considered business agreements, policies, and practices, and a good legal strategy, can help businesses to achieve strong protection against unfair competition.
