What to Do If an Ex-Employee Is Violating a Non-Compete

What to Do If an Ex-Employee Is Violating a Non-Compete

As a business owner, if you have discovered that an ex-employee has violated the terms of their non-compete agreement, this article will explain how Demand Letters can help you send a cease and desist letter to protect your interests. 

Many employers require employees to agree to various restrictive covenants to protect their companies from the leakage of sensitive business information and the theft of intellectual property and to prevent unfair advantages for their competitors. A non-compete clause restricts employees from starting or joining a competing business. Employers desire non-compete agreements because they want to invest in their employees through training and information sharing without having to worry about whether the employee will later use their intimate knowledge of the business to the employer’s detriment. 

What Is a Non-Compete Agreement?

A non-compete agreement limits an employee’s ability to create or join a competing business for a certain length of time after they end their employment with a company. Non-compete clauses are also commonly found in agreements relating to the sale of a business to ensure the sellers won’t start or join another business that competes with the new owners. 

It’s important to note that the validity and enforceability of non-compete agreements will vary from state to state.

Some states severely limit non-compete agreements, such as California, Oklahoma, and North Carolina. In other states, only certain types of careers are eligible for non-compete agreements. 

What Should Be Included in a Non-Compete Agreement?

Non-compete agreements have specific requirements to be enforceable. It’s important to consult with an attorney before implementing a non-compete agreement to ensure that it can be upheld in your jurisdiction. Non-compete agreements typically contain the following components:

  • Effective date and reasonable end time
  • The specific timeframe in which the employee is not allowed to work for a competitor
  • The geographic locations or territories the agreement covers
  • What compensation or value the employee receives for agreeing to the terms

There are many potential pitfalls to be mindful of when it comes to non-compete agreements. In general, the narrower the scope of the agreement, the more likely it is to be enforceable. Non-compete arrangements cannot place undue hardship on an employee or violate the employee’s rights, or have an unfair effect on his or her long-term job prospects. The company must be protecting a legitimate business interest in the non-compete agreement as well. 

Once an enforceable contract is in place, employers can seek compensation for damages to their business if the agreement is broken. This could include damages relating to financial losses, data loss, or other losses suffered due to confidential or proprietary business information being shared by the ex-employee. The employer can also seek a court order preventing the employee from helping the competitor. 

What Other Protections Can a Non-Compete Agreement Provide For?

The non-compete agreement or other restrictive covenant agreement will typically prohibit an employee from sharing confidential business information, including marketing plans, research, and development, or proprietary practices or processes. Employers also have an interest in protecting personal information that the company may acquire in the course of doing business, such as client bank information, social security numbers, or banking details. In addition, employers want to protect relationships they have developed with customers, suppliers, and other business partners. 

Trade secrets are another type of confidential information that an employee could have gained through their employment at the company. Also, specialized training or knowledge that could only be acquired from the company may qualify as confidential information that is protectable under a non-compete agreement.

How Can a Cease and Desist Letter Be Used to Enforce a Non-Compete?

If you have discovered an ex-employee is violating the terms of their non-compete agreement, a cease and desist letter can be an essential step to stop the harmful activity. In a best-case scenario, a cease and desist letter may be the only step you need to take to stop the offending actions of the ex-employee. 

The letter should demand that the former employee stop the particular activity that is harming your company—be that working for a competitor, sharing confidential information, poaching clients, or selling trade secrets. The letter should include a reminder of the former employee’s agreement with the company and their contractual obligations, and a warning of potential legal action if the former employee refuses to comply. 

Why Should You Have a Lawyer Send a Cease and Desist Letter?

While anyone can send a cease and desist letter, they have the most significant effect if they come from an attorney. Having the letter come from an attorney will help ensure that the former employee takes your demands seriously. A lawyer will also be knowledgeable about how to draft a persuasive letter. If the former employee refuses to comply with the cease and desist letter, the lawyer can further help you by providing additional advice and options or initiating a lawsuit. 

A cease and desist letter can be a cheap (relative to a lawsuit) and an efficient way to resolve a non-compete dispute with a former employee. It can be difficult, however, to find a lawyer that will prepare a letter for a reasonable cost.

Demand Letters can connect you to a lawyer that can prepare and send a cease and desist letter for one low flat rate, with no hidden costs. 

When Should You Sue a Former Employee for Violation of a Non-Compete Agreement?

If your cease and desist letter does not stop the former employee’s breach of the non-compete clause, litigation may be your next step. A company may request that a judge order the former employee to stop working at their new employer or business. The company may also ask for monetary damages. 

A company should act quickly if they suspect a former employee has violated their non-compete agreement, as courts will consider the company’s reaction to an actual or threatened violation of a non-compete agreement when determining the outcome of a case. 

Non-compete litigation can be expensive and time-consuming. Many companies may decide litigation just isn’t worth the effort, and that sending a cease and desist letter is as far as they’re willing to go. Before commencing legal action, consider:

  • Can you confirm that the employee signed the non-compete agreement?
  • Is there enough evidence that the agreement should be enforced?
  • Is the agreement itself compliant with state laws?
  • Will litigation bring your company negative publicity? If so, is this case worth it?
  • Will litigation cause poor morale with existing employees or cause them to leave the company?
  • Do you have the time and funding to pursue litigation?

Conclusion

If you are an employer and find yourself in a position where a former employee has violated the terms of a restrictive covenant agreement—by either joining a competing company, poaching your clients, or revealing confidential and proprietary business information—you should take immediate steps to address the breach. Having a lawyer send a cease and desist letter to stop the offending actions can be a highly effective and cost-efficient way to resolve the issue without resorting to a costly lawsuit quickly.

Demand Letters can connect you to a legal professional that will prepare and send a cease and desist letter for a low flat fee. Click on the link below to get started.

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