When an employee leaves your company, it’s not just an HR task; employee departures can be a legal and operational risk. From confidential information to client relationships and intellectual property, departing employees could leave with client relationships, pricing strategies, or proprietary systems that took years to develop.
Whether you’re a small business or a large enterprise, you should be asking:
- Are your employee agreements up to date and enforceable?
- Do you have protections in place to prevent misuse of confidential information?
- Are your trade secrets protected under the law?
Below, we outline the key legal areas employers should consider to protect their interests, and how your business can benefit from putting safeguards in place now.
Non-Compete Obligations During Employee Departures
What’s the Risk?
“What if a top performer joins a competitor, and uses the knowledge we trained them on to compete against us?”
When a valued employee moves to a competitor or starts their own business, employers worry, rightfully, about the transfer of trade secrets, confidential business information, and customer relationships.
Non-compete agreements offer a way to protect a business’s legitimate interests by restricting a former employee’s ability to work for a competitor or start a competing business within reason. In the absence of a carefully tailored non-compete or non-solicitation agreement, your options for recourse may be limited.
Yet many businesses, particularly small and mid-sized employers, either rely on outdated form agreements or have never implemented non-competes at all. This is risky.
Why You Should Be Thinking About It
Non-compete agreements can help protect your business, but only if they’re carefully drafted. Whether by common law or state Acts, most courts only enforce reasonable non-competes, so outdated or overbroad language could be unenforceable.
Generally, for a non-compete to be considered reasonable and enforceable, an employer must show the following elements:
- The restraint is necessary to protect the employer’s legitimate interests.
- The restraint would not cause undue hardship on the employee.
- The restraint would not be injurious to the public.
Following this three-prong analysis, most courts only enforce reasonable non-competes as to:
- Its duration (typically 6–12 months)
- The geographic limits (e.g., where the employee worked or where your business operates)
- The scope of activities prohibited (like customer goodwill or proprietary processes)
When these elements are properly balanced, a non-compete can serve as a valuable tool to protect your business interests without overreaching.
Employer Tip: To avoid disputes about enforceability, employers should include any non-compete or other restrictive covenant agreements at the time of the initial job offer, or as part of a promotion, compensation change, or new role, with a clearly documented benefit offered in exchange. If an employer attempts to enforce a non-compete signed after hiring without offering new benefits, the court may invalidate the agreement entirely.
Legal Reference: See Tex. Bus. & Com. Code § 15.50 et seq.; Maw v. Advanced Clinical Commc’ns, Inc., 846 A.2d 604, 608-09 (2004); see also Solari Indus. v. Malady, 55 N.J. 571, 576, 264 A.2d 53, 56 (N.J. 1970); see also Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 32-33, 274 A.2d 577, 580-81 (1971); see also Dick v. Dick, 167 Conn. 210, 355 A.2d 110 (1974).
Employee Departures: Preventing Confidentiality Breaches
What’s the Risk?
“How do we stop a former employee from sharing sensitive pricing info, client data, or internal processes?”
Confidentiality agreements, also referred to as non-disclosure agreements or NDAs, in commercial transactions, are used to protect a company’s confidential information. Without enforceable confidentiality agreements, your ability to stop a former employee from disclosing or using this information, intentionally or not, can be significantly limited.
Commonly protected information includes:
- Clients and prospective clients
- Personnel records
- Business plans and pricing lists
- Marketing and advertising plans
- Financial budgets, projections, and information
- Trade secrets and inventions
Confidentiality agreements, also referred to as non-disclosure agreements or NDAs, in commercial transactions under New Jersey law are used to protect a company’s confidential information.
Without enforceable confidentiality agreements, your ability to stop a former employee from disclosing or using this information, intentionally or not, can be significantly limited.
Why You Should Be Thinking About It
Every business has some form of proprietary information, even if it’s not patented technology. And yet, many employers don’t treat this information like the valuable asset it is. Even if an employee leaves on good terms, future misuse of confidential information can still occur after employee departures, especially if they join a competitor.
Confidentiality obligations are separate from non-competes and are often easier to enforce. Yet many businesses never formalize these obligations or only include them in offer letters.
Confidentiality agreements are generally enforceable in New Jersey when reasonable in scope and necessary to protect unique, proprietary information, even when such information cannot be considered a trade secret. The terms of the agreement, however, must not be unduly burdensome on the bound party or injurious to the public interest.
In addition to the above, courts are more likely to side with employers who have clear, documented confidentiality policies and signed agreements.
Moreover, as with non-competes, confidentiality agreements generally cannot be retroactively applied to cover information that was already disclosed or shared before the agreement was signed—unless there is clear, mutual intent and adequate consideration to support that retroactive application.
To maximize enforceability and minimize risk, employers should implement confidentiality agreements early, ensure they are properly scoped, and routinely revisit them as roles or access to sensitive information evolve.
Employer Tip: Reaffirm confidentiality obligations during exit interviews and document return or destruction procedures to strengthen your legal position.
Legal Reference: See Lamorte Burns & Co., Inc. v. Walters, 167 N.J. 285 (N.J. 2001); Raven, 195 N.J. Super. 209; Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25 (N.J. 1971).
Protection of Trade Secrets
What’s the Risk?
“Could a former employee use our data, designs, or know-how to get a head start elsewhere?”
Unlike copyrights or patents, trade secret protection requires ongoing employer action to preserve confidentiality.
Trade secrets, a specific subset of confidential information, derives independent economic value from being secret and are subject to reasonable efforts to remain secret.
Covered trade secrets may include:
- Current and prospective client lists
- Production processes, plans, and designs
- Business methods
- Source code and software algorithms
Trade secrets can be among a business’s most valuable assets but without proper safeguards in place, it can be difficult to stop misuse or obtain injunctive relief.
Why You Should Be Thinking About It
Certain confidential information may be entitled to protection as a “trade secret” under applicable federal or state law, in addition to those protections provided pursuant to contractual obligations. However, many employers don’t realize that simply calling something a “trade secret” isn’t enough, you have to show that you took reasonable measures to protect it. If you don’t, courts may not offer any protection at all.
For information to qualify as a trade secret, (1) it must be kept confidential from the public, (2) it must provide an essential commercial advantage to its owner due to its confidentiality, and (3) the owner must take reasonable steps to protect the proprietary nature of the information. Such steps can include, among other things, labelling the information as “confidential” or “trade secret”; restricting access to the information, such as by locking physical access or making digital information password protected and/or encrypted; and requiring recipients to agree in writing to safeguard the information’s secrecy prior to receipt thereof. The more commercially valuable and well-protected the information is, the more likely courts are to treat it as a trade secret under law.
In short, courts will look not just at the nature of the information, but at how diligently the employer worked to protect it. Without proactive measures in place, even highly valuable information may lose its legal protection.
Employer Tip: Implement internal protocols that limit access, log usage, and incorporate NDAs into onboarding for anyone exposed to high-value information.
Legal Reference: Defend Trade Secrets Act of 2016 (DTSA) 18 USCS § 1836; New Jersey Trade Secrets Act (NJTSA) N.J. Stat. Ann. §§ 56:15-1 to -9; see also P.C. of Yonkers, Inc. v. Celebrations the Party & Seasonal Superstore, LLC, 428 F.3d 504 (3d Cir. 2005).
How Our Firm Can Help
Most employee-related disputes can be avoided, or at least managed far more effectively, by putting the right agreements, policies, and exit strategies in place ahead of time.
Don’t Wait Until You Have a Problem
Our team can help your business:
- Draft or update non-compete, non-solicitation, and confidentiality agreements tailored to your business goals and industry norms,
- Audit your existing employment documents and onboarding/offboarding practices, or even
- Take legal action (if necessary) to enforce your rights or stop improper competition.
If you haven’t thought seriously about what happens when a key employee leaves, now is the time. With the right legal tools and policies, you can protect your business from the most common, and costly, risks tied to employee departures.
Have questions or want to strengthen your agreements? Contact us at info@ogplawfirm.com or call us (201) 508-0808 today.