Non-Compete Agreements in Puerto Rico

May 4, 2013 by Fleming Law Office in Puerto Rico Business-Law: News & Articles | Comments Off

Along with confidentiality agreements, covenants not to compete help companies protect their private information and limit unfair competition from employees who leave. If your company does business in Puerto Rico is important to understand that the courts in Puerto Rico disfavor non-compete clauses.

Article II sec. 16, of the Constitution of Puerto Rico recognizes the right of every worker to choose his occupation and freely resign. To protect this freedom of choice, courts have narrowly interpreted non-compete clauses and imposed strict requirements for their validity. When these are not met, the contract is deemed invalid and unenforceable.

Valid non-compete clauses require that:

The employer have a legitimate interest in the agreement, that is, of not receiving the protection of a non-compete agreement, the business would be substantially affected. The magnitude of this interest is measured, in light of the position of the employee within the company. That is, the existence of the employer’s interest will be directly related and dependent on the employee given his/her the position in the company, can effectively compete with the employer in the future.

The scope of the prohibition must correspond to the interest of the employer, as to object and place restriction term or affected customers. The purpose of the ban should be limited to activities similar to those conducted by the employer, need not be limited to specific functions used. The term non-compete should not exceed twelve months, understanding that any additional time is excessive and unnecessary to adequately protect the employer.

Regarding the scope of the prohibition, the contract must specify the geographic boundaries or affected customers. As for the geographical area to which the restriction applies, it should be limited to the strictly necessary to prevent real competition between the employer and employee. When the non-competition concerns customers should refer only to those who personally attended the employee for a reasonable period of time before giving up, and in doing so, or in a period immediately preceding the withdrawal, clients were still employer. These elements are evaluated in mind the nature of the industry involved and the possible related public interest.

The employer must offer something in return for signing the non-compete agreement by the employee. This consideration may be, for example, in obtaining a promotion, additional benefits at work or enjoyment of any similar substantial changes in employment conditions. Even serious enough consideration a candidate obtains the desired job in the company. However, there shall be allowed as a cause of non-compete agreement mere continued employment.

Non-compete agreements, as with any contract, must have the essential elements for validity: consent, object and cause. Article 1213 of the Civil Code, 31 LPRA sec. 3391. However, in this type of contract will be especially strict to ensure that the employee freely and voluntarily signed the non-compete agreement. Undue pressure or coercion by the employer will make it invalid and unenforceable.

Trade Secret Protection in Puerto Rico

September 3, 2012 by Fleming Law Office in Laws of Puerto Rico, Puerto Rico Business-Law: News & Articles | Comments Off

Puerto Rico has a new statute to regulate the use and protection of industrial or trade secrets. Known as the “Industrial and Trade Secret Protection Act of Puerto Rico.” Act No. 80 of June 3, 2001, follows the model law of the Uniform Trade Secrets Act (UTSA).

Industrial or trade secret includes any confidential information with trade or industrial value, which its owner reasonably protects to prevent its disclosure. Often, these secrets can be very valuable and become an integral part of a company’s competitive position.

BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF PUERTO RICO:

Section 1.—Title.—

This Act shall be known as the “Industrial and Trade Secret Protection Act of Puerto Rico.”

Section 2.—Definitions.—

For purposes of this Act, the following terms shall have the meaning provided for below:

(a) Information.—Knowledge that broadens or clarifies knowledge already garnered. It includes, but is not limited to, any formula, compilation, method, technique, process, recipe, design, treatment, model or pattern.

(b) Improper Means.—Unlawful means not allowed under the law or which is contrary to free competition and to laws and regulations in effect, whereby a trade secret is obtained, including, but not limited to, misappropriation, theft, bribery, malfeasance, deceit, breach of contractual duties, wiretapping, or espionage through electronic or other means.

Section 3.—Trade Secret.—

Industrial or trade secrets are deemed to be any information:

(a) That has a present or a potential independent financial value or that provides a business advantage, insofar as such information is not common knowledge or readily accessible through proper means by persons who could make a monetary profit from the use or disclosure of such information; and

(b) For which reasonable security measures have been taken, as circumstances dictate, to maintain its confidentiality.

Any information generated by, used in or resulting from any failed attempts to develop a trade secret shall also be deemed to be a part thereof.

Section 4.—Reasonable Security Measures.—

Reasonable security measures are any preventive measures that should be taken in order to limit access to information under specific circumstances. These shall be determined pursuant to any foreseeable conduct whereby the trade secret could be accessed and the nature of the risk ensuing from such conduct, as well as the cost-benefit ratio between the security measure and the trade secret.

Measures that can be deemed to be reasonable to maintain the confidentiality of the trade secret include, but are not limited to:

(a) The nondisclosure of information to individual or entities not authorized to access such information;

(b) Limiting the number of persons authorized to access such information;

(d) Keeping such information in a place separate from any other information; (e) Labeling such information as confidential;

(f) Taking measures to impede the indiscriminate reproduction of such information;

(g) Establishing control measures for the use of or access to such information by company employees; or

(h) Implementing any technologically available measures when publishing or transmitting such information over the Internet, including the use of email, web pages, message boards, and any other equivalent medium.

Section 6.—Grounds for Action.—

Any natural or juridical person who misappropriates a trade secret shall be held accountable for any damages caused to its owner.

For purposes of this Act, misappropriation shall be:

(a) The acquisition of a trade secret belonging to another by a person who knew or should have known that he/she acquired such secret directly or indirectly through improper means; or

(b) The disclosure or use of a trade secret belonging to another without his/her express or implicit consent, by a person who:

(i) Used improper means to gain knowledge of the trade secret; or

(ii) At the time of disclosure or use, such person knew or should have known that such trade secret was:

(1) Obtained through a person who acquired such information through the use of improper means;

(2) Obtained under circumstances from which a duty to maintain confidentiality or to limit use ensues;

(3) Obtained through a person who had the duty-bound to the trade secret’s owner to maintain confidentiality or limit use; or

(4) Known by accident or by mistake.

Section 7.—Special Proceedings.—

When in the judgment of the corresponding Court, in a lawsuit supported by a sworn statement filed by the owner of a trade secret, specific facts are alleged which clearly establish that the defendant misappropriated such trade secret, that the disclosure or use thereof by the defendant shall cause damages to the plaintiff, and that it is highly likely that the plaintiff shall prevail, the Court shall issue a provisional ex parte order to require the defendant to immediately stop, cease or desist, under warning of contempt, from the use and disclosure of the trade secret which prompted such lawsuit, until a hearing is held within ten (10) days following the date the provisional order is issued.

The provisional order shall provide for a hearing to be held within ten (10) days following the date such order is issued, in order for the defendant to show grounds for which a preliminary injunction should not be issued so as to allow for the elucidation of the rights of the parties involved. The order thus issued shall be rendered ineffective, inefficient, and invalid and shall not be enforceable after such ten (10)-day term has transpired. Such term may only be extended if the Court finds that extraordinary circumstances exist before the expiration of the term for the previous order.

Section 8.—Remedies; Injunction.—

In all cases in which it is proven that an industrial or trade secret has been misappropriated, the Court may issue a preliminary injunction order, for which the plaintiff shall not be under the obligation to prove irreparable damages. Furthermore, the Court may issue a permanent injunction once the case has been fully heard.

The Court, by request of the defendant, shall terminate the injunction if such industrial or trade secret has ceased to exist as a secret. The Court may extend the injunction for an additional reasonable term so as to prevent the defendant from obtaining an improper business advantage, or if the defendant is culpable when such secret ceases to exist.

The Court may, under extraordinary circumstances, order that reasonable royalties be paid if it finds that prohibiting the future use of an industrial or trade secret would be an unreasonable measure. The term provided for paying such royalties shall not exceed the term during which the use of the industrial or trade secret was prohibited. Finding that a party is using the trade secret before being aware or in a position that allowed him/her to be aware of the concept of misappropriation shall be deemed to be an extraordinary circumstance, thus rendering the injunction non-equitable.

Section 9.—Remedies; Damages.—

Except in cases in which there has been a change in position or situation, before the defendant was aware or should have been aware of the concept of misappropriation concerning the information of the industrial or trade secret, and this renders a monetary settlement non-equitable, the plaintiff may recover any material damages sustained because of such misappropriation. The plaintiff may also claim any additional damages caused by any advantage obtained by the defendant as a result of such misappropriation which have not been included in the computation of losses caused by such damages. If unable to prove, to the satisfaction of the Court, material damages or damages caused by improper advantage, the Court may order the payment of royalties for a term that shall not be longer than the term for which the use of such information would have been prohibited.

The Court, in its discretion, may fix the sum total for damages in an amount that shall not exceed thrice (3) the proven damages when the Court finds that the violation was intentional and perpetrated in bad faith.

The elements to be considered when granting damages for misappropriation of an industrial or trade secret include, but are not limited to:

(a) Loss of profit for the owner of such information;

(b) Value of the sum that would have been paid to a consultant to develop such information;

(d) Developing costs in the process of acquiring such information; or

(e) Such information’s market value.

Section 10.—Attorney’s Fees.—

In addition to the circumstances provided for in the Rules of Civil Procedure in effect, the Court shall impose on the claimant, in its ruling, a reasonable sum on account of attorney’s fees if the evidence presented proves that such misappropriation by the defendant was intentional and perpetrated in bad faith.

Section 11.—Conservation of Secret.—

(a) In any action filed whereby misappropriation of an industrial or trade secret is alleged under this Act, the plaintiff, before discovery of proof, shall describe the trade secret as specifically as possible, but without disclosing the same.

(b) In any action filed under this Act, the Court shall keep the confidentiality of the alleged industrial or trade secret and take measures as it believes to be necessary, which may include, among others, the issue of a protective order that ensures confidentiality, holding closed hearings, keeping the records of such action sealed, and ordering any person involved in the lawsuit not to disclose the industrial or trade secret without the previous authorization of the Court.

(c) Before ordering the discovery of information classified by its owner as an industrial or trade secret, the Court shall determine whether the party that requests the discovery is in substantial need of such information. For purposes of this Act, a “substantial need” shall be deemed to exist if the following circumstances are present:

(i) The allegations presented with the purpose of establishing the existence or absence of liability, have been presented in a specific manner;

(ii) The information for which discovery is sought is directly relevant to the allegations presented in a specific manner;

(iii) The nature of the information for which discovery is sought is such that the party seeking its discovery would sustain substantial damages if access to such information is not allowed; and

(iv) There is the belief, in good faith, that the testimony or evidence generated by such information that is a part of the trade secret shall be admissible at trial.

(d) The Court shall not order direct access to databases that contain information that is a part of a trade secret, unless the Court finds that the party proposing the discovery is unable to obtain such information through any other means and that such information is not privileged.

(e) By request of the owner of an industrial or trade secret, the Court may make the discovery of such industrial or trade secret contingent upon the posting of an appropriate bond.

(f) Any industrial or trade secret discovered under this Act may only be disclosed to the persons identified in the order issued by the Court, and may only be used or disclosed within the court proceedings in which its discovery is authorized.

(g) Any person who receives information that is a part of an industrial or trade secret under this Act shall be subject to the jurisdiction of the courts of the Commonwealth of Puerto Rico.

(h) When an industrial or trade secret is discussed or disclosed at trial or in a hearing, the Court shall order the removal from the courtroom of any persons whose presence is not indispensable to continue court proceedings, and the owner shall be allowed to obtain confidentiality agreements individually signed by all persons present at the courtroom or who are party to any proceeding in which the trade secret is discussed, presented or otherwise disclosed if such persons have not previously executed a confidentiality agreement with the owner of such industrial or trade secret.

(i) Any information that is a part of an industrial or trade secret, and any copy, duplicate, document or any other means that reflects or contains such trade secret information or any portions or excerpts thereof shall be returned to the owner of such trade secret upon conclusion of lawsuit proceedings, or destroyed to the owner’s satisfaction.

Except for the provisions in this Section, this Act preempts any law of the Government of Puerto Rico that provides for civil remedies for misappropriation of a trade secret.

This Act does not affect:

(a) Contractual remedies, whether or not based on the misappropriation of a trade secret;

(b) Other civil remedies not based on the misappropriation of a trade secret;

Section 13.—Prescription.—

Any action or proceedings to enforce any provision of this Act shall be instituted no later than three (3) years following the date the person affected became or should have been aware of the occurrence of the facts that constitute grounds for an action.

Section 14.—Severability Clause.—

If any clause, paragraph, section, subsection or part of this Act is found to be unconstitutional by a competent Court, the ruling thus pronounced shall not affect, impair or invalidate the remainder thereof. The effect of such ruling shall be limited to the clause, paragraph, section, subsection or part of this Act thus ruled unconstitutional

Section 15.—Effectiveness.—

This Act shall take effect immediately after its approval.

Dealing With Difficult Workers: What You Need to Know

July 30, 2012 by Fleming Law Office in Puerto Rico Business-Law: News & Articles | Comments Off

If you are a boss that relies on disciplinary memos to improve employees’ attitudes or performance you should know by now, it rarely works. Written warnings are often perceived by workers as the untold beginning of their discharge process. It’s not surprising that they are counter-productive. On the surface, the employee may appear as if he will correct the situation. Wrong. He is just playing the same game you are.

If disciplinary memos are ineffective to improve performance, why do you and other employers keep using them? It’s simply the fall back position after repeatedly avoiding to timely deal with the issue.

You dislike confronting bad behavior or performance for two reasons. First, it is generally an uncomfortable thing to do. Secondly, hardly anyone is properly trained to do so.

The longer you wait to resolve the situation, the further complicated it gets. What usually happens is that unwanted conduct will progressively worsen until it bothers you so much that you decide it’s time for the employee to go.

Fearing legal issues, you begin crafting memos to reprimand the employee on every possible violation. You go from no confrontation to major confrontation. At this point the corrective nature of the memo is probably a farce. You simply want to document every possible deficiency until the file is thick enough to boot the guy.

What if instead you corrected the situation long before you began thinking about memos or legal issues? Instead of waiting until that point of no return, you decided to confront unwanted behavior. Think of all the hassle and money you could have saved.

Nothing is stopping you except your will and skill. Perhaps you may have wanted to take earlier action but were afraid to do so for fear of escalating the situation or getting involved in a shouting match. Not anymore, here are some solutions.

Decide what to confront. What is really important here? There may be several things to confront. Decide on the bigger issue. Do you want the employee to improve or is it about teaching her a lesson. Do you want to prove you are right or reach a mutually beneficial solution?

Show that you truly care and respect the employee. We all need to feel respected at all times. It’s human nature. Be firm but always respectful. Confronting the person in private, in a normal tone and never ever get personal. One thing is to be late. Another is to be called lazy. Don’t fall on this trap. It’s the easiest way to divert an issue. If you disrespect someone be the first to admit it. Apologize; make sure the person gets the apology and quickly return to the issue at hand.

Make sure the worker gets that you care, and have the best interest at heart. He/she will be more receptive to whatever you have to say. Look for mutually beneficial points of view rather than ‘you versus me’ issues.

Stick to the facts. Don’t let your own filters, personal issues and stories get in the way of the truth. Too often we pre-judge and point out character flaws based on our prejudice and misconceptions. Learn how to distinguish between the facts and your story.

Perfect Attendance at Work

July 23, 2012 by Fleming Law Office in Puerto Rico Business-Law: News & Articles | Comments Off

A while ago, a client mentioned to me that people were regularly coming to work late. He wanted this situation to change pronto because it was creating operational and economic issues for the company. He asked for suggestions besides sending warnings to the workers. He also mentioned that employees always had a reason to justify the tardiness.

People who show up on time for work have to handle the same issues as those who come late. If an employer has attendance issues, then it must examine existing policies, rules and the workplace culture.

More than written rules and regulations, the way things are actually conducted in a company represents its culture. Every company has a particular culture (or cultures). It develops and solidifies- not by internal rules and regulations – but by the shared values and practices of the group that composes it. Said otherwise, the culture in a company is a reflection of its values; it is the recognized, shared and valued conduct at work. Multiple cultures can exist in a company.

How engaged are your workers to arrive on time? Does your company’s culture support lateness or rejects it? Lets go a step further, how committed are the employees at your company? Rules and regulations are one of many tools that are used in the process of creating a high performance workplace they are useful but cannot operate alone by themselves.

Improving attendance might require a company wide meeting, drafting policies and procedures, avoiding exemptions (not everyone is required) , reinforcing the new policies through senior management communication channels, enforcements for those who refuse to adopt the new rules, rewards for compliance and perfect attendance among other mechanisms.

Find Your Place Away From the Competition

July 17, 2012 by Fleming Law Office in Puerto Rico Business-Law: News & Articles | Comments Off

As small businesses owners find it increasingly difficult to compete in a crowded marketplace, they try to market to everyone. Unfortunately you cannot be all things to every customer. If you are that kind of business there is another way. It’s about focusing on your uniqueness. By differentiating yourself from the competition, you are creating valuable space in a very crowded marketplace. More importantly, you may begin to stop competing based on price.
There is a physician I used to visit. He practices sports medicine. He did not accept medical plans, credit cards or ATMs. Thousands of dollars in cash flowed weekly through that prosperous medical practice. By differentiating himself from other doctors, he could charge higher fees, demand cash and avoid slow paying discounted medical plans. Competing on price is the worst thing you can do. Avoid it like the plague. When you lure customers based on discounts, you are cornering your business into tight profits. Your customers will begin demanding low price and that is what you will be known for. To give you an idea, if your product has a profit margin of 30% and you give a 10% discount, you’re losing one-third of the available profit.

Lowering your profit margins means you have to sell more and work harder for the same net income. That does not make sense, if you are in business to make money, you should be doing it with the least amount of effort possible. After all it’s never about the money. It’s time for you to start selling by following a more focused approach; one that will yield the customers you want based on your uniqueness. It’s about finding your niche. This requires two steps. First examine both your business and the competition. Follow by identifying your ideal client. Then you can begin to market your business and give them what they want. Some businesses talk about image development. I had a client that was approached by ad agency suggesting that he spend thousands of advertising dollars developing the business’s image. This included a radio and print campaign and sponsorships on mayor events. The theory was that by letting the world know that he existed, many would come knocking his door.

Marketing without knowledge of who wants your products – is like following Alice in Wonderland. Your marketing dollars must be an investment not an expense. Unless you are a large enterprise, spending money to enhance your image in the community is probably the biggest waste of advertising dollars. The simple uncomplicated strategy is to lead a focused marketing message to your prospects that you are a specialist in what your targeted clients want.

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Puerto Rico Business-Law: News & Articles

Non-Compete Agreements in Puerto Rico

Trade Secret Protection in Puerto Rico

Dealing With Difficult Workers: What You Need to Know

Perfect Attendance at Work

Find Your Place Away From the Competition

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