Q: A larger travel agency was on
the brink of buying my agency, but the deal fell through at the
last minute. By that time, I had already provided the prospective
buyer with confidential information about my clients and employees.
We never signed a contract, although the buyer assured me that he
would maintain the confidentiality of my information. But I suspect
that the other agency has started using my information to solicit
my more important clients and more productive employees. Can I do
anything about this?
A:
You are almost certainly powerless to stop these raids. Unless you
can prove to a judge or jurys satisfaction that you have an oral
agreement under which the buyer promised not to disclose your
confidential information, there is nothing you can do.
The chances of
proving such an oral agreement are very low. The buyer would
probably deny any such agreement, so it would be your word against
his. In litigation, a tie goes to the defendant, as the plaintiff
has the burden of proof.
Even if the buyer
admitted that he agreed to keep your information confidential, he
could say that he understood his sole duty was not to disclose
information to third parties and that solicitation was not
prohibited. In that case, you would still lose.
The next time you
find a prospective buyer, make sure he signs a binding agreement
promising confidentiality before you disclose any information that
you might consider confidential: client names, volumes, fees,
profiles, employee names, seniority and compensation. For large
agencies, confidential information also includes details of
override programs and other supplier deals.
The document can
take any of three forms: a clause in a letter of intent
specifically binding the buyer, even if the rest of the letter of
intent is not binding; a separate confidentiality agreement; or
confidentiality clauses in the acquisition agreement itself. It
does not matter which document you use, as long as it is worded to
protect what you want protected.
In addition to
listing what you want protected, the document needs to say that the
buyer will refrain from two kinds of acts: disclosing confidential
information (including the fact that you are for sale) to third
parties and using confidential information for any purpose except
to carry out the acquisition.
For a simple sample
form of a confidentiality agreement covering all of the foregoing
points, go to www.pestronk.com/confidentiality.html. However,
remember that your agreement needs to be drafted to cover your
particular needs under your states laws. You should consult an
attorney knowledgeable in business acquisitions before signing such
an agreement.
Cynical readers are
no doubt saying to themselves, Confidentiality agreements are not
worth the paper that they are written on, as it is too costly to
litigate and too hard too prove that the defendant violated it. I
say: Not true. The primary purpose of such agreements is to deter
violations in the first place.
While there are
potential buyers who have no scruples at all, they are a minority.
In your case, the odds are good that the potential buyer would not
have committed the violations if he had signed a good
confidentiality agreement.
Mark Pestronk
is a Washington-based attorney specializing in travel
law.