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Protect Customer Relationships with Non-Competes

A decision handed down by the Missouri Court of Appeals on January 24, 2013, highlights a challenge that companies face in trying to protect customer relationships when they do not require their employees to sign non-compete or non-solicitation agreements. In that case, called Central Trust and Investment Co. v. Kennedy, a relationship manager for a financial services firm left and started his own competitive venture when the firm was sold to a third party. After his departure, the employee admittedly solicited clients of the financial services firm for his new business. Although he had signed an employment agreement prohibiting him from competing or soliciting clients, that agreement expired upon the sale of the business. Lacking a contract to enforce against the relationship manager, therefore, the successor firm sued for misappropriation of trade secrets, as well as other claims, alleging that the relationship manager had retained a customer list and a customer database from his former firm. 

The trial court entered summary judgment in favor of the employee. The Court of Appeals agreed, ruling that, based on the specific facts of that case, the customer list and database did not qualify as “trade secrets” protected by the Missouri Uniform Trade Secrets Act. In reaching that conclusion, the Court cited a number of ways in which the information was not treated as secret, including: the company’s sharing of that information with third parties, providing access to it by other employees without confidentiality restrictions, failing to pursue other former employees who used it, and publicly disclosing it in marketing materials. At the same time, the Court observed that the proper way to protect customer relationships is a non-compete agreement. Because the employee’s non-compete in this case had expired, the successor was left without a remedy. 

This case serves as a reminder to companies who wish to protect customer relationships. Employees with significant customer contact or access to sensitive customer data should be required to sign non-compete or non-solicitation agreements. Those contracts need to be carefully crafted in order to maximize enforceability. In addition, companies should take steps to ensure that they treat their customer information and other sensitive data as truly confidential, in order to improve the chances of gaining trade secret protection.