Non-solicitation and non-competition obligations can lead to sleepless nights on both sides
Discussions about toxic working environments have received considerable attention over the last few years, but acrimony following a dismissal or even resignation can be equally fierce.
We receive many frantic calls from employees and employers alike worrying about post-employment non-solicitation and non-competition obligations, often after substantial accelerating threats have been made.
They are the sorts of calls that can lead to sleepless nights on both sides. Employers worry about the financial strain and impact on the business if their clients are stolen, and past employees’ lives are disturbed by even the prospect of litigation, which for many would be financially ruinous.
For a former employee, just receiving a cease-and-desist letter brings disbelief, even trauma. But, unhappily, that may be only the beginning. An injunction could follow, with the potential of an emergency court order, freezing your assets and forcing you to do various things which you do not wish to do, or forcing you to abstain from doing something you would like to.
Then, looming in the future, is the prospect of a full-blown legal action, with attendant years of significant legal costs, even if you win. There is little fun in protracted litigation, whether envisioned or ongoing.
Employers take this course against former employees because, depending on the size of the company, their business can truly be at stake. Losing key clients, vendors or partners can cripple a company, and such assets must therefore be fiercely protected. Even if the employee is not a serious threat, a failure to take action might make the employer seem vulnerable to the predations of others. Sometimes employers knowingly take losing cases just to discourage others and to distract the former employee from competing with them while draining their resources.
For that reason, the worst part for an unlucky few is that the entire dance might only be a business strategy. Even if an employee is not subject to an enforceable non-solicitation or non-competition agreement, and sometimes even if they are not subject to any contractual restraints at all, an employer will send letters, seek injunctions and commence litigation, as merely a lesson for them and others.
The threat or commencement of a lawsuit can reduce the risk of competition merely through subjecting departing employees to sleepless nights and fears over their livelihoods and possessions. That preoccupation often leads to them abandoning their plans to create a competing business or to attempt to recruit key customers or employees.
The first step, whether employee or employer, is to determine what obligations actually exist. They might be implied as a result of an employee’s stature within a company, what is called a “fiduciary” (usually a business owner or executive employee), or the obligation might be as simple as the precise wording contained within a contract or non-solicitation agreement.
When the restrictions are contractual, the next step is to determine whether they are enforceable at all. Perhaps they are so broad that the law will not permit them. This often occurs when the geographic scope is not specified at all, or where it is too broad. Or, perhaps the period of non-competition or non-solicitation is too lengthy to be enforceable. Courts do not permit overly restrictive contractual terms which limit a person’s ability to pursue the work they desire, even if those desires conflict with the objective of their employer or former employer.
If a restriction is unenforceable, sometimes a strongly worded letter from an employment lawyer can make a company back off. But not always. The company still has the objective of protecting its business interests first and foremost, often whether there are contractual terms to support that interest or not.
That said, usually it is possible to find compromise. Avoiding a court battle therefore often means sharing information and developing an arrangement where some interests of the employee are protected and some of the employer’s.
Many of these problems can be avoided by seeking legal advice before problems arise. But when litigation is threatened or a lawsuit brought, a swift response is a must.