ALP: I’m a local employer. Why do I need to be concerned about other states’ laws on trade secrets and employee non-compete agreements?

August 2006

Most employers have heard of the value and potential risks associated with employee confidentiality and non-compete agreements.  You may think you have protected your Ohio, Kentucky, or Indiana information and employees from migrating to a competitor.  But, from crossing the Ohio River to crossing the Great Divide, state-by-state differences in the law may have significant impact on your efforts to protect confidential business information.

With America’s labor force becoming more and more mobile, the impact of every state’s laws becomes more and more important to your business.  Most importantly, some states may refuse to follow our local laws and instead provide a former employee with legal excuses to avoid his or her obligations to you – even if the employee’s contract says our local laws will apply. 

For example, California, Georgia, Connecticut, and Louisiana courts might ignore provisions in your former employee’s contract where he or she agreed that local law would apply.  Courts in California, Texas, and Georgia might permit your former employee to avoid non-compete restrictions.  If an employee memorizes key information and runs off to Atlanta, the Georgia courts might very well condone that activity.

The deciding factor often turns out to be who sues first, and in what state.  The easiest and best means to increase the likelihood that a former employee will not successfully run to another state to sue you, is to require any disputes to be addressed in the local courts.  Inserting such language into your non-compete agreements will help avoid the potential risk of the employee undermining your corporate efforts to protect your business data and competitive position.