The current economic climate has dominated headlines since late 2008 and will continue to do so into 2010, at least.

Sales are down. The market is down. Unemployment is up. Federal bailout money is flying faster than Wall Street's corporate jets.

Smart companies will use this climate to their advantage by negotiating better terms, conducting energy audits, and otherwise taking a hard look at costs and potential revenue sources. Smart companies should also review their employees' non-compete agreements - or the possibility of requiring certain employees to sign them.

A non-compete agreement (NCA) is an agreement that typically imposes several restrictions on an employee after termination of the employee's employment.

NCAs often contain a number of provisions designed to keep a company's valuable information and goodwill from going out the door with a departing employee. For example, NCAs may prohibit a former employee from (1.) soliciting customers, suppliers, or co-workers; (2.) using or disclosing confidential information; or (3.) claiming ownership of innovations developed during the employment relationship.

NCAs can be standalone agreements or they may be included in employment contracts or employee handbooks. Some of these restrictive covenants are also common in business-associate agreements, supplier contracts, and other contracts governing business relationships that involve access to confidential information.

Non-solicitation clauses are a common way for NCAs to bar an employee from using inside information to identify and exploit a former employer's key relationships. Non-disclosure clauses bar former employees from disclosing or using confidential information such as customer lists, manufacturing processes, trade secrets and other proprietary information. These clauses typically define or provide examples of what the company considers to be confidential. Innovation clauses give an employer ownership of inventions or innovations developed by the employee during the employment relationship.

NCAs may also contain clauses governing, among other things, what law will apply, where and by whom disputes are to be resolved, and what happens if an employee breaches the NCA.

Lawyers have seen increased interest in NCAs on the part of clients in the past six months. Employees are reviewing their NCAs, so employers should also be reviewing their NCAs - or their need for them.

Companies looking at ways to improve their soft sales may consider recruiting your best sales staff in an effort to obtain your clients, know-how, and goodwill. Companies interested in acquiring or improving their technology or manufacturing processes may also want to recruit your engineers or managers. A well-drafted NCA may make competitors think twice about cherry-picking your personnel.

NCAs may also make your employees think twice before leaving to join a competitor or to strike out on their own in an attempt to carve out a piece of your business. Brave entrepreneurs may use current conditions to get deals on office space, equipment, and personnel costs. Will they - intentionally or otherwise - walk away with your client relationships?

Employers that have not put NCAs into place should consider whether they are passing up avaluable opportunity to protect assets and intangibles. Although not a silver bullet, NCAs can provide a degree of protection for trade secrets, accounts and goodwill. Employees may be more inclined to sign an NCA in a tough economy in order to avoid rocking the boat.

Employers with existing NCAs should also review them. Do they still meet your needs? Will they be enforced against employees who are terminated or laid off? What other protections are available where valued employees are departing your organization?

Although a tightening job market may cause some employees to stay put, that may not be true in all cases.

Although some employees (fueled partly by Internet sites devoted to breaking NCAs) sign NCAs under the impression that they are not enforceable, they are not as judicially disfavored as they once were.

Courts are more inclined to enforce NCAs in situations involving highly compensated employees, trade secrets, or sale-of-business transactions. NCAs properly tailored to protect legitimate interests will be enforced. Courts confronted with an NCA will review the reasonableness of its restrictions, typically expressed in terms of duration and distance. The broader the scope, the more closely it will be examined.

For example, worldwide restrictions may be unreasonable in some industries but reasonable in others. Likewise, a one-year restriction will be reasonable in some circumstances but unreasonable in others, such as in industries with high-speed obsolescence (for example, those related to the Internet or software). One size does not fit all, and reasonableness is often in the eye of the beholder.

Another factor that courts will consider is whether or not the employee's separation is voluntary. Where an employee is laid off or terminated without cause, the employer may find it more difficult to enforce an NCA.

New York courts have held that an employee must be terminated for cause in order for an employer to enforce an NCA. It may not always be clear, however, what constitutes "for cause." For example, budget constraints may prompt an employer to make termination decisions based on performance or conduct issues that might have resulted in less drastic consequences during better economic times. Whether an employee was terminated for cause will depend on whose lawyer you are asking. Although courts may be disinclined to enforce NCAs where doing so prevents the employee from making a living, each case requires a fact-specific analysis.

Once a business decides to use an NCA, management must also decide which employees to ask to consent to it and how to ask.

NCAs are not appropriate for use with all employees. They are often designed for employees with access to confidential information, with unique or special skills, or those in a position to appropriate important relationships. Typical candidates include engineers, some sales staff, health-care providers and high-level management.

Presenting an NCA to a new-hire tends to be fairly straightforward. Presenting existing employees - especially long-term and trusted employees - with an NCA can prove trickier.

Educating employees is important. Let them know that keeping the company competitive, especially in tough economic times, means job security. Also, signing an NCA will allow the employer to invest its resources in the employee, thus giving the employee the ability for upward mobility within the company. And employees will want to know that they will be able to find employment if they lose their job. NCAs are not one-size-fits-all, and the NCA at issue may be limited geographically or to certain competitors or industry segments. Finally, a signing bonus may be offered.

NCAs should be specifically tailored to an individual situation in order to provide maximum protection - and an increased likelihood of being upheld if tested in court. Properly used, however, NCAs are a valuable tool for ensuring that information and intangibles do not leave with a departing employee.

Jeremy Colby is a partner in Webster Szanyi LLP in Buffalo and maintains a blog at www.abuffalolawyer.blogspot.com. He can be reached at jcolby@websterszanyi.com.