法律英语：10 Conflict of Interest

by Michael W. Flynn

 

First, a disclaimer: Although I am an attorney, the legal information in this podcast is not intended to be a substitute for seeking personalized legal advice from an attorney licensed 1 to practice in your jurisdiction 2.

Further, I do not intend to create an attorney-client relationship with any listener.

Before I begin, I would like to welcome the newest member of the Quick and Dirty Tips podcasting family: Sales Guy’s Quick and Dirty Tips for Getting the Deal Done, hosted by Jeb Blount. Every week, Jeb gives great tips on how to close the deal and increase productivity in the sales industry. Check him out today at his website: sales.quickanddirtytips.com. 

Today is the third in employment discrimination series, and focuses on an interesting question I received from a listener who identified him/herself as “Concerned Employee”:

My employer recently had all employees sign a Conflict of Interest form wherein employees are informed they must inform Human Resources before forming any outside business.  If I am forming an outside business that in no way competes and/or conflicts with my existing employer is it legal for them to force disclosure of what business I operate on my personal time?

The short answer is that this type of disclosure requirement probably violates public policy on the ground that it is an unnecessary violation 3 of your privacy, and it might lack necessary consideration. 

The general rule in employment law is that an employer may place any condition on employment so long as it does not violate a statute 4, such as Title VII from the last episode, or public policy. Most courts have held that it violates public policy for an employer to inquire into your personal life unless the questions are related to your job performance. An employer cannot force you to tell it how often you have sex, or what companies you have investments in, or what your favorite television show is. So, the requirement to disclose ALL outside business seems at first blush to go too far. 

Further, contracts in restraint of trade, made independently of a sale of a business or contract of employment, are also void as against public policy. The employer cannot force you not to take on other jobs, or not to sell something you make where the other job or the goods you are selling are wholly unrelated to the employer. For example, if you work for a plumbing 5 company, the company cannot enforce a wholesale 6 ban on your ability to teach piano lessons on the side. 

But, many noncompetition clauses are generally enforceable against employees, subject to exceptions of course. If an employee signs a noncompetition clause when they are hired, promise not to compete within geographic 7 limitations and for a measurable amount of time, then that clause is enforceable. So, a clause prohibiting the plumber 8 from servicing former clients within a 50-mile radius 9 for two years is likely enforceable. 

If an employee is forced to sign a noncompetition clause while already employed, the clause’s enforceability will generally turn on whether the employee is at-will, or subject to a contract. An at-will employment relationship is one in which either party can terminate the relationship with no liability provided there was no express contract for a definite term governing the employment relationship. If the employee is subject to an employment contract, then the terms of the contract will generally control. That is, if the contract states that your employer reserves the right to force you to enter into a noncompetition clause, then you are likely bound by it. 

However, if you are an at-will employee, courts are split. Some courts have held that there must be some additional consideration, or value, offered to you in exchange for signing the clause. So, an Oregon court stated that, by being promoted to a higher management level, the noncompetition clause that was required was supported by the extra pay and responsibilities. By contrast, an Arizona court held that the simple offer of continued employment was sufficient to render the clause enforceable. The court reasoned that the employee was at-will, and could be fired at any time. So, the “offer” to continue paying the employee was sufficient consideration for the employee to sign the noncompetition clause. 

The last consideration that might come into play would be trade secrets. A trade secret is a formula, practice, process, design, or compilation 10 of information which is not generally known or reasonably ascertainable 11, by which a business can obtain an economic advantage over competitors or customers. A company always has the right to keep you quiet with regard to its trade secrets. So, Google can restrict its employees from divulging 12 secret algorithms and can prohibit former employees from using knowledge of those algorithms in other employment. 

With these principles in mind, it appears that Concerned Employee cannot be forced to sign the disclosure statement, and even if he or she does, the clause is not likely enforceable. First, it forces the employee to volunteer personal information unrelated to the business. Second, even if the clause were tailored to only require disclosure of businesses related to current employment, some courts would hold the clause unenforceable because there is no additional consideration. Third, a wholesale ban on other employment is not likely narrowly tailored enough to be considered a protection on trade secrets.   

Thank you for listening to Legal Lad’s Quick and Dirty Tips for a More Lawful 13 Life.  Be sure to check out the Sales Guy’s Quick and Dirty Tips for Getting the Deal.

You can send questions and comments to。。。or call them in to the voicemail line at 206-202-4LAW.  Please note that doing so will not create an attorney-client relationship and will be used for the purposes of this podcast only.