After a company has confirmed that its former employee has violated or is violating his or her non-compete agreement (see Part I) and determined that the basic prerequisites of an enforceable non-compete are present (see Part II), the next step is to decide upon the appropriate strategy for stopping the employee from further violating his contractual obligations. This can involve one or all three of the following steps.
Sending a Cease and Desist Letter to the Employee
Most of the time, an employer will begin the process of enforcement of the agreement by sending a cease and desist letter to the violating employee. Such letter will typically remind the employee of his contractual obligations to the employer, let the employee know that the employer is keeping track of his activities, and warn the employee that if he does not stop violating the agreement, the employer will take a legal action. A lot of the letters also include a request for assurance from the employee that he understands his obligations and will abstain from violating the non-compete. A failure to receive such an assurance or a vague and evasive response from a former employee could be a sign that he or she has no intention of complying with the agreement.
Contacting the New Employer
If a cease and desist letter does not do the trick and the employee continues to violate the non-compete agreement, his former employer may choose to notify the new employer of the terms of the non-compete agreement. Now days, most companies – especially in the industries where non-compete agreements are prevalent – ask any potential hires whether they have executed any non-compete or non-disclosure agreements with their former employers. If they have, the new employer will usually review the agreement or have their legal department review it to make sure that the new hire will not be in violation of such contract when hired.
Sometimes, however, companies do not ask for such agreements or the potential hire fails to disclose the agreement’s existence, either intentionally or because he does not remember signing one. In such a situation, sending a letter to the new company notifying them that the employee they have hired is violating his or her non-competition agreement could motivate the new company to let go the employee in order to avoid getting involved in any litigation related to his agreement with the prior employer.
This approach, however, should be considered very carefully, since it could prompt the employee to file a suit for defamation, libel, or tortious interference with a contract or a business relationship against the former employer. If a cease and desist letter can be handled by a manager or a department head, this step should involve a consultation with an attorney and consideration of all legal consequences.
Filing a Lawsuit Against the Employee (And Possibly the New Employer)
Sometimes, the violation is so egregious that the employer might need to skip the cease and desist letter or discussions with the new employer and seek protection from a court or an arbitration panel right away. This is especially true if the departed employee had access to the old employer’s confidential or proprietary information or trade secrets and the employer has a reason to believe the the employee might use this information to compete.
Typically, this means filing a lawsuit or a petition for arbitration and immediately applying for injunctive relief – a court order that prohibits employee from engaging in certain activities while the parties litigate or arbitrate their dispute. Before filing the lawsuit, however, it is important to consider whether the non-compete agreement contains the following provisions since they can affect where the lawsuit should be filed and what law will govern the dispute:
1. Arbitration Clause. If the agreement contains an arbitration clause, then the employer-employee dispute will most likely be governed by such a clause. It determines where the dispute must be arbitrated, how much discovery is allowed, and whether the arbitration entity of choice has the authority to grant injunctive relief.
2. Forum Selection Clause. Luckily for employers, the United States Supreme Court has recently ruled in Atlantic Marine Construction Co., Inc. v. U.S. District Court for the Western District of Texas that a forum selection clause found in a contract must be given deference in all but the most unusual circumstances. Thus a non-compete agreement that contains such a clause will most likely have to be litigated in the state or a jurisdiction specified in the agreement.
3. Choice of Law Clause. This might be a non-issue for local Texas businesses, but for national or multi-national companies, the choice of law clause might incorporate a number of different states, some of which might be more favorable to employers (Texas) or less favorable to them (California). If there is no choice of law provision, courts will apply the law of the state that has the most significant relationship to the dispute. If the former employee traveled all over the country or the employer has several offices around the country, the analysis can become quite complicated.
Assuming that all of the above clauses point to Texas as the proper forum, the general standard for obtaining injunctive relief in this state is governed by Tex. R. Civ. P. 680 in state courts and by Fed. R. Civ. P. 65 in federal courts. The injunctive relief under both set of rules includes a temporary restraining order (TRO) and a preliminary injunction (PI).
A TRO is an order that directs a party to do or not to do something for a limited period of time. It is the fastest form of relief and can be granted by the court without an appearance by the employee. In a lawsuit related to a violation of a non-compete agreement, the party applying for a TRO typically asks the court to prevent the employee from working for a new employer, soliciting customers or employees, or revealing confidential information.
PI is similar to a TRO but, if granted, will last until the case is tried or settled, and it requires an evidentiary hearing at which the former employer will have to show, among other things, that it is likely to prevail on the merits of the case.
Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. For a consultation regarding a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.
4 comments