The Five Pitfalls for Employers to Avoid When Exiting Employees

In today’s competitive employment market, employee resignations are reaching near record-highs. Whether a separation is voluntary or involuntary, employee terminations often happen quickly and involve many moving parts. To protect the company and enhance enforceability of any post-employment restrictive covenants, employers should make sure to avoid these common pitfalls as they transition employees out of the company.

1. Skipping the Exit Interview. 

With all the moving pieces and administrative requirements for exiting an employee, employers may be tempted to skip the exit interview and simply move on. However, exit interviews can be useful tools to mitigate risk for the employer. The exit interview is an important opportunity to remind the departing employee of their ongoing obligations to the company, to take an inventory of devices and accounts the employee should relinquish upon resignation, and to have them sign a re-affirmation of the terms of the restrictive covenant agreement, as appropriate under applicable law.

The employer can also learn details about where the employee intends to work next, and in what capacity. If an employee is forthcoming, the employer will be in a position to make an informed decision concerning post-employment restrictions. If, on the other hand, an employee is evasive, this may raise red flags for an employer to investigate further. Either way, this information may be critical in enforcing any restrictive covenants that bind the employee after termination.

2. Failing to Demand Return of Company Information. 

As workforces have become increasingly remote, it may be more difficult than ever to ensure that all company information has been returned. Gone are the days when employers could simply walk an employee out the door, leaving all company information securely in the office. Instead, information lives in home offices, cloud platforms, personal devices, and other difficult to track locations.

It is therefore critical to the protection of trade secrets and other intellectual property of the company to move quickly to remove a departing employee’s access to any company systems, such as email, document storage, or cloud based platforms. Likewise, employers should require, through policy and practice, that any physical information in the employee’s possession is promptly returned, including paper documents, computers, and external storage devices. Because it may not be possible to physically observe the employee in the time leading up to their departure, employers may consider requiring an attestation from employees that they have returned, and not retained copies of, all company information.

3. Not Following State Requirements for Enforcing Non-Competes. 

If the exiting employee is planning to join a competitor, and even if they indicate that they are not, employers should be careful to ensure that they are following the state specific requirements relating to their post-employment restrictive covenants. For example, employees in Massachusetts may only be bound to a non-compete provision if they are terminated for cause or depart voluntarily, and employers should pay careful attention to consideration requirements. In Illinois, employees cannot be bound by a non-compete unless they have received adequate consideration or have been employed by the company for at least two years. Employees in Oregon must be provided with a copy of their signed, written non-compete agreement within 30 days of termination in order to be bound by its restrictions.

As the non-compete landscape is in a state of near constant flux at the local, state, and federal levels, it is prudent for an employer to contact experienced employment counsel when exiting an employee with an existing restriction in place.

4. Immediately Wiping an Employee’s Company-Issued Devices. 

Employers may be tempted to take the assets previously assigned to an exiting employee, promptly reset them, and reissue them to another employee. While this may be cost effective, it could also result in the loss of important forensic data if a concern later arises concerning a former employer’s misappropriation, theft, or use of company data after their departure. This type of forensic information often proves invaluable to an employer attempting to meet the burden of proof for a temporary restraining order or preliminary injunction against a departing employee.

Employers should consider implementing a policy by which devices and accounts are maintained for some period of time following a termination before they are reset or reissued, or at least assessing whether to preserve these sources of evidence for employees whose departures are accompanied by red flags indicating risk of misconduct.

5. Failing to Move Quickly to Assess Strategy. 

If an employer has concerns about a departing employee’s intentions, time is of the essence. In assessing whether an employer can prevent a former employer from working for a competitor, for example, a court will consider whether the employer has demonstrated that failure to enjoin such behavior would cause irreparable harm to the employer. Delay often makes this requirement harder to prove.

Employers should therefore quickly assess the situation to determine next steps. Experienced outside counsel can assist in the analysis and provide guidance on how to approach the situation. For example, a reminder letter, or a more strongly worded cease and desist letter, may be prudent. It may also make sense to perform a forensic analysis of the departing employee’s devices and accounts. Finally, it may be necessary to protect the company’s interests through initiation of a lawsuit. But simply ignoring a potential breach is rarely the right strategy. Delays may limit the employer’s options and undermine the employer’s legal remedies.


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