Guest article

Protecting your business – prospective employees and investors

By Thomas L James

- Last updated on GMT

Related tags: Contract

Nutraceutical companies should have certain protective documents in
place prior to or promptly at the beginning of any dealings with
potential new employees and investors that can greatly affect the
company and its future.

Nutraceutical companies should have certain protective documents in place prior to or promptly at the beginning of any dealings with potential new employees and investors that can greatly affect the company and its future. These documents are vital to the protection of the company and, unfortunately, are often overlooked or introduced at later points in time that can be too late to properly protect the company. Prior to hiring new non-scientific employees, a nutraceutical company needs to have them sign confidentiality agreements and written policies that protect traditional areas of proprietary information of the company (such as technology, formulas, methodologies, customer lists, prospects). They also need to contain non-solicitation clauses that protect against employees soliciting other employees or business relationships – former, existing or prospective. In the case of employees who could hurt the business by future competition, such agreements may also need to contain non-compete clauses. The scope and duration of any non-compete clause should be dictated by law of the state in which the employee is located or providing a majority of his/her services to the company. In addition to the confidentiality, non-solicitation, and non-compete agreements and written policies, scientific employees should also sign agreements covering the assignment of all inventions and discoveries to the company. Every scientific employee to assist the company in any protection of intellectual property, such as patent applications. Finally, prior to engaging in any discussions with any potential investors, the company needs to have such persons or entities execute a proper non-disclosure agreement, which also contains non-circumvention provisions and non-solicitation provisions. The traditional non-disclosure agreement usually only restricts a party from disclosing or using the confidential information of the other party. The additional non-circumvention provisions restrict the other party from getting into the business of, and/or becoming a competitor of the disclosing party, other than from the use of the confidential information of the disclosing party. The non-solicitation provisions restrict the potential investor from soliciting the employees and business contacts/prospects of the disclosing party from leaving or diminishing their relationship with the disclosing party. The most important point to remember is that the proper protective documents need to be put in place no later than at the beginning of any of the above relationships, in order to properly protect the company. A contract is not valid unless there is 'adequacy of consideration' in its making, meaning that both sides are getting something of value in the contract in order to make it valid and enforceable against each party. After such relationships have already commenced, it might be too late. Thomas L James is a partner in Foley's Washington, DC office. He is a member of the firm's Transactional & Securities and Private Equity & Venture Capital Practices, as well as the Life Sciences Industry Team. He can be contacted at 202 295 4012 or via email at tjames@foley.com.

Related topics: Suppliers

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