How to Protect Company Property in an Employee Separation Agreement

How do I protect my company's property when an employee leaves on dicey terms?



The basic structure of a separation agreement is that the company agrees to give something of value (consideration)--typically in the form of a separation payment--to a departing employee in exchange for the employee making certain commitments to the company. One of the primary objectives of any separation agreement should be to protect your company’s property.

The departure of any employee you hire can get complicated. Sometimes employees resign because they’re unhappy or they feel like they’re being pushed out by office politics. Some employees are asked to leave, while others are summarily fired for whatever reason. Often one side will assign blame to the other, or there will simply be irreconcilable differences that make it impossible for the work relationship to continue. In any of these cases, where an employee’s departure might be under less-then-genial circumstances, it's a good idea to have a separation agreement to avoid potential conflicts and protect your company’s interests.

Protecting Confidential Information

Your company’s confidential information is among its most valuable assets. It includes your customer and supplier lists, financial data, strategies, business plans, documents, communications, work product, legal information, addresses, phone numbers, email addresses, and all other contact information for every person vital to your business. The sharing of even an iota of this information with a competitor could significantly tip the market balance in their favor. The exposure of confidential information could also lead to a public relations nightmare or disadvantage your company in a legal proceeding. As a result, the vital interest in protecting confidential information is so great that employees are often required to sign a nondisclosure agreement (sometimes called a confidentiality agreement or NDA) before they begin work for a company.

Employees often gain access or are exposed to at least some part of a company’s confidential information. Particularly in instances where the employee may be leaving on bad terms, a separation agreement can help ensure that the employee keeps all sensitive information confidential, regardless of any personal feelings the employee may have towards the company.

The non-disclosure (confidentiality) provisions in a separation agreement should be worded as broadly as possible to not only include all confidential information generally, but also those specific items that are of particular value and concern to the company. For example, a technology company might be particularly interested in protecting their intellectual property interests. The manufacturer of a food product may want to ensure that the ingredients of their special sauce aren’t revealed. It's usually a good idea to define what is included in the term "confidential information" and what is excluded. Furthermore, the duration of the nondisclosure provision should be for the greatest length of time possible. For further discussion on confidentiality provisions, including a basic sample agreement, see Sample Confidentiality Agreement (NDA).

Proprietary Rights

People often confuse confidentiality provisions with proprietary rights protection. For this reason, separation agreements often omit proprietary rights provisions. But, the protection of proprietary rights is a separate, distinct, and important matter that should also be covered, particularly for companies that have a vested interest in protecting the ownership of their trade secrets and intellectual property. The critical difference between a nondisclosure provision and a proprietary rights provision is that the proprietary rights provision establishes that the company automatically owns any inventions or intellectual property that were created by the employee as part of his or her employment. The nondisclosure provision on the other hand prohibits the departing employee from disclosing the company’s trade secrets or intellectual property.

Unlike the nondisclosure provisions, which solely relate to limitations on the employee’s future conduct, the proprietary rights provisions can be enforced immediately. The company can make it a condition to the employee’s receipt of the separation consideration that the employee sign and deliver all documents necessary to have all intellectual property rights assigned to the company. This gives the company leverage to ensure the employee’s full compliance. Furthermore, in the event that the company seeks to eventually file a copyright, patent, or trademark with respect to any such intellectual property, the proprietary rights provision should require that the employee cooperate with any such process.

Return of Company Property

In decades past, it might’ve been the case that when an employee was terminated, the employee might steal away with some random office items (highlighters, pens, paperclips, and the like). However, given the recent technological revolution, employees can take terabytes of company data with them on a portable hard drive. As such, the separation agreement should contain a clause ensuring that the employee will return all company property (including all equipment, documents, memos, keys, disks, and so on) before any of the separation consideration is delivered to the employee.

As with the proprietary rights provisions, the company has the leverage to immediately enforce the employee’s return of its property by withholding the delivery of any separation consideration until the employee has fully complied. If the employee has already returned all of the property sought by the company, then this provision should include the employee’s representation that all items have been returned and that the employee hasn’t retained any copies or duplicates. Note that this provision works in tandem with the confidentiality provision, because it becomes much more difficult for the employee to share confidential information if the underlying data and documents are no longer in the employee’s possession.

See Nolo's articles, Including a Bulletproof Release in Your Employee Separation Agreement and How to Protect Your Company’s Goodwill in an Employee Separation Agreement for more information on separation agreements.

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