eSignature Legitimacy for Non-Solicitation Agreement in Australia

How to eSign a document: e-signature legitimacy for Non-Solicitation Agreement in Australia

good morning ladies and gentlemen welcome to the people processes podcast i'm your host rami alijul and i'm excited to have you here today today we're actually trolling reddit see uh my wife is a big reddit user i'm not but she told me there's the subreddit called ask hr and she went through there and pulled a couple of cool questions that had come up and this was one of the ones that i thought uh would be interesting because most of the questions on there from an employee perspective this one is one that i've actually had employers bring up with me just in the last few weeks so i wanted to help people figure out what's going on okay so here's the question that was posted to reddit covid has caused my wife's company to issue a non-compete that's the title policy my wife has been with her company for seven years it's a sales based job that's important she's extremely good at it and what she sells has become a passion for her covet has hit her particular industry really hard and is to be expected her company has really tightened up salary reductions company-wide policy changes a lot of furloughs firings etc she's been spending the last month looking at other jobs and being that it's commission based her current resume of clients would benefit her greatly if she were to take another job in the same field her company after seven years just sent it out a non-compete contract to all of the sales team this would effectively make any potential future job worthless since she would be dumping her high paying salary even if it's currently reduced and starting from absolute zero because her field is completely commissioned her non-compete would forbid her to reach out to any current customers from her company she's feeling super stuck and overwhelmed now and is really hesitant to sign it what happens if she doesn't does she have any options here any help or advice is greatly appreciated thanks edit located in maryland very good okay so people get these words mixed up and i don't know if the poster is aware of the differences between non-competes non-solicitation and what we call company secrets or trade secrets which falls under the duty of loyalty let's talk about each one of those and how this matters uh what's going on people say a non-compete they mean you can't work in this industry okay so a non-compete wouldn't say if you go to a competitor uh you can't take your clients with you uh this non-compete would say you can't go to a competitor okay so i don't know if he's using the right verbiage here but i'm going to take meta's word that it's a non-compete and that her primary concern is that she would not be able to take her clients with her employers come to me with this too they say hey my i'm going to lose one of my employees they're going to go to my competitor i'm afraid that they're going to call on all of our current clients well it's a reasonable fear it's very important that's why especially that's why you expel out a lot of these sort of sort of items in contract when you sign people not contracts but agreements okay let's talk first about the duty of loyalty an organization's current employees fall under a duty of loyalty to the organization each state defines that a bit differently in general employees are not permitted to induce current customers suppliers or other employees to leave the organization nor are they allowed to operate a competing business while still employed by the organization when that duty is breached the employer may be entitled to collect lost profits punitive damages out-of-pocket costs incurred to train replacements etc offending employees may be forced to forfeit their salaries or to end to give up any profits they made as a result of the disloyal conduct in addition courts may issue injections forbidding employees engaging in similar conduct for a specified period under the duty of loyalty the law generally prevents an individual from using trade secrets or proprietary information of a current or former employer to the detriment of that current or former employer so this is important the duty of loyalty exists without any sort of agreement even in that will state the duty of loyalty is the expectation that people will keep things safe now it's always better to spell out everything right uh but this would be about your non-disclosures right it's keeping things secret what is a trade secret so so he's worried about a non-compete my my expectation is that she's probably already signed a non-disclosure something that recognizes trade secrets uh and if she doesn't the company doesn't actually have to have it again this duty of loyalty exists whether you sign paperwork to that effect or not but it helps if you spell it out what is a trade secret a trade secret can be information that derives independent economic value from not being generally known or readily ascertainable so if it's something that isn't generally known and is worth something it's a trade secret among the things that can be trade secrets are formulas patterns compilations programs devices methods techniques processes other things the courts have found to be trade secrets are machining processes blueprints stock picking formula customer lists pricing information and non-public financial data on the other hand such information like overhead rates and profit margins that help define a price may be found to be a trade secret even if the price itself is known so things that contribute to your strategy count 48 states and the district of columbia have adopted in whole or in part the uniform trade secrets act it's to make this a lot easier the utsa codifies the basic principles of common-law trade secret protections and may afford employers protection even in those states like california where restrictive covenants are not generally enforceable we'll talk about that in a second the utsa protects an employer from misappropriation and misuse of actual trade secrets which are defined as information including a formula pattern compilation program device method technique process drawing data or customer list right there in the law that derives independent economic value actual potential from not being general known to uh not not being generally known or readily ascertainable by other persons who can value who can obtain economic value from its disclosure or use is the subject of efforts that are reasonable under the circumstances to maintain its secrecy an employer must take reasonable measures to maintain the confidentiality of trade secrets in determining whether reasonable steps have been taken courts balance the cost and benefits on a case-by-case basis even states that have not adopted the utsa which are very few generally pretty similar stuff um to trade secrets um there's what's called the restatement of torts which is kind of the common law version of this you don't have to worry about it 48 states in dc cover this to determine whether a piece of information is a trade secret states uh following those those unusual ones those restatement of torts will will examine the following six factors the extent to which the information is known the extent to which it's known by the employees and others involved in the business the extent of measures taken by the business to guard the secrecy of the information the value of the information to the business and its competitors that's big right customer list in certain industries i don't know what she's in could be highly valuable the amount of effort or money expanded by the business in developing the information the easier difficulty with which the information could be properly acquired or duplicated by others so the secret the more secrets you keep it the more you put into keeping it secret the more valuable it is the more likely it is a straight a trade secret so reddit poster it's entirely likely that your customer list is already a trade secret they're asking you to sign a non-compete that's a different thing if she can sign the non-compete and go work at a competitor it's not a non-compete it's a non-solicitation a non-disclosure something like that but it may already be covering things that are in there now if it is a non-compete and what you're actually stressed about is hey if she signs this she'll have a problem going and working somewhere else and those exist we call those broadly restricted covenants restrictive covenants as in a promise to restrict restrictive covenant we also call them non-competes non-competition agreements they are contracts contractual arrangements contracts that restrict employees rights to compete with their employer for a period of time following termination of employment once reserved for the highest level executives researchers and outside sales personnel non-compete agreements are being increasingly used with mid-level managers technical staff and any other employers whose departure could create a competitive disadvantage outside sales personnel have been falling under non-competes for a very long time so it's not unusual to see them unlike the common law duty of loyalty an agreement not to compete prohibits conduct that takes place after the employment relationship has ended and it's not limited to wrongful contact such as stealing client lists so pulling the client list and and using that that's one thing non-solicitation of existing clients that's kind of a mid-tier step non-compete says you can't even compete with me i don't know where this it actually falls but non-solicitations and non-competes both have a some interesting parts before embarking on a campaign to have employees sign non-compete agreements you should consider a few cautionary points employers who are listening considering these points will also help companies draft workable enforceable ingredients because a lot of these agreements are actually not enforceable courts in all states dislike non-compete agreements and welcome the opportunity to limit or eliminate them they are the most hated things by uh judges in the business world you gotta have a really good reason the sentiment is largely based on a desire to allow individuals to earn a living in the field of their choice non-competes restrict that agreements that are too broad are likely to be tossed out or at least rewritten by a judge in the states that allow for such an option not all states do some say the judge you gotta throw the whole thing out as a general rule courts will consider the following factors in determining whether to enforce a restrictive covenant does the employer have a legitimate interest in being protected from the employee's competitive activity a court may refuse to enforce a restriction that is too broadly drafted even though the employer may be able to demonstrate a legitimate business interest worthy of protection it needs to be as narrow as possible is the restriction reasonable in light of all the circumstances by reasonable the courts would mean that there is that the agreement is no more restrictive upon an employee than necessary to protect an employer's legitimate business interests is the restriction reasonably limited in time and geography this is a big one the agreement must contain a reasonable time restriction such a time restriction will be based on such factors as the time it would take to train a new employee and for customers to become familiar with this employee and eliminate the identification between the employer's business and the informer employee the geographical scope of the restriction must be limited to areas necessary to protect the employer's interests as well so outside sales personnel they often fall they often get non-competes the restriction is normally for some period of time that's long enough for them to bring in a new outside salesperson take your clients that you had before and get them used to the new guy will enforcing the restriction harm public interest this is a big one especially at executive level positions will any aspect of public policy be effective if the agreement is enforced this factor tends to be the least definitive however the following example could be illustrative an employer hospital requires restrictive government with the only cardiac surgeon in a 500 mile radius and that surgeon then leads the hospital if the restricted restrictive covenant were to require the subject to not complete within a 200 mile radius the public would be severely harmed by this covenant so that's kind of where that pops in now this is the big one and this is the one that i think mr reddit user may save you was there reasonable consideration given in return for the restricted covenant being signed most states require an employee's agreement to non-competition restrictions to be in exchange for receiving something of value in fact all of them that i know of so what are those things of value it could be the initial job offer that's absolutely accepted a raise or promotion or extra benefits upon leaving the organization so you have to give someone a reason so for example one of the common things that you see in an outside sales organization is is at the beginning when you're hired to take the job and upon severance you wind up signing another copy just saying like i totally agree to do this and in return i'll get to keep my renewals for two years or something like that there could be some benefit after you leave uh another question is when the non uh when will the non-compensation non-competition restrict should be triggered some agreements apply automatically whether the employee's termination was for calls without calls or as part of a layoff some agreements only apply if the employee resigns or is terminated for calls other agreements limit the period of restricted activity to the time severance benefits are being paid where the period of restricted activity is limited to the duration of senate for its benefits payment the employee is free to forego service payments severance payments to accept that so uh there are some ways that this kind of comes out during during those now i'm going to link the reddit forum on here as well down below i hope this was helpful to you mr redditor i would throw out a few things are you getting some sort of consideration for this contract continued employment probably won't pass muster because they're taking something away rather than giving it to you original employment would have so think about that if it is truly a non-compete the problem isn't that she won't have her comp her her client list it's that she'll have to move to get the job in the same industry if it's a non-solicitation which is an agreement not to talk to your prior clients it's very similar to a non-compete it's a restricted covenant but it's actually much easier to enforce it's a much lower standard it simply says you can go work for another bank selling mortgages you just can't talk to any of your prior clients for a period of two years they're quite common they do fall under the same thing they're supposed to have a consideration but they're very likely to be part of the original agreement of employment they may be sending out a new one i don't know but get your terminology right is this a non-compete a non-solicitation or is it a reminder of trade secrets right it's entirely possible from the beginning that they're just saying hey reminder um you can quit and we don't have any problem uh you know we don't have anything in writing saying you can't contact our clients but you can't take a list of client phone numbers that's illegal and we will come after you that's like already there even without any agreements the information the client list is protected so if she's got it memorized that's one thing but don't you know if you copy a crm if you take her call log those kind of things that is absolutely illegal and we'll get you in a lot of trouble okay ladies and gentlemen i hope this was helpful to you i hope that as employers seeing an employee's kind of reaction to something like this may help you kind of understand how to structure them um thank you for tuning in please as a reminder like comment subscribe if you're on youtube please subscribe i'm really trying to grow those subscriber contents i have to get to a thousand subscribers on youtube before we can do live events on youtube and i very much want to do that so please take a moment to subscribe on youtube also if you go to peopleprocesses.com and subscribe we email you we give you subscriber only content pretty cool stuff throughout the months ladies and gentlemen my name is ramy ali jill thank you for tuning in now it's time for you to go out there have a great day and get your work done i'll see you soon you