Small businesses often worry about employees leaving to join competitors and taking valuable intellectual property with them. While non-compete agreements can be used to protect business interests, California has stringent laws about their enforceability. This case study explores how a small business owner in California managed intellectual property protection without violating state laws.
Innovative Designs, a small design agency in Riverside, hired a talented designer, Sara Patel, who quickly became a top performer. After a year of excellent work, Sara decided to leave and start her own competing business. She took several client files and proprietary design concepts with her.
Innovative Designs wanted to prevent Sara from competing directly with them but was unsure how to do so legally under California’s non-compete laws, which severely restrict the enforceability of such agreements.
The business owner, Eric Hughes, consulted with a third-party employment law consultant to figure out how to protect his business:
Focus on Non-Disclosure Agreements (NDAs): The consultant advised Eric to focus on NDAs instead of non-compete agreements. While non-competes are largely unenforceable in California, NDAs can still protect proprietary business information.
Client Agreements and Restrictions: Eric was also advised to include provisions in his contracts with employees that specifically protect against the theft of proprietary work product and client information.
Employee Education: Innovative Designs introduced an employee onboarding process that included clear explanations about the protection of intellectual property and client relationships.
Innovative Designs successfully enforced its NDAs and was able to prevent Sara Patel from using the proprietary designs and client information she had taken. The business also avoided costly litigation by focusing on legally enforceable agreements.
Lesson Learned: Non-compete agreements have limited enforceability in California, but non-disclosure agreementsand other strategies can help protect a small business’s intellectual property.
