You have just learned that one of your former employees might be violating the terms of his non-compete agreement with your company. What should you do? Should you call him and ask him to stop? Should your general counsel send him a letter threatening with a legal action? Or should you immediately file for a temporary injunction? You might end up doing all of these things, but your first step should be gathering evidence that will support your claim of violation, and you should move as quickly as possible.
Thus, before you alert the employee that you are aware of his activities, and before you spend thousands of dollars in attorney’s fees in pursuing a temporary injunction, follow these steps that will help you assess the strength of your claim against the ex-employee and gather the necessary ammunition.
STEP 1: Gather Relevant Evidence
You will need to know as much as you can about the employee in question and any agreements he might have signed with the company that might contain a post-employment restriction on his activities. Look for the following documents in the employee’s file:
(1) employment applications;
(2) offers letters;
(3) employment contracts;
(4) stock option agreements;
(5) non-competition agreements;
(6) non-solicitation agreements;
(7) separation or severance agreements;
(8) any releases of claims executed as part of any settlement agreements;
(9) documents that an employee might have executed as part of the merger and acquisition; and
(10) any other agreements signed by the employee that might contain any post-employment restrictions.
When you look for these documents, keep in mind that a non-compete agreement in Texas might be a stand-alone document or it can be incorporated in one of the above documents.
Also, remember that in Texas, for a non-compete to be enforceable, an employer must give a separate consideration in exchange for the employee’s promise not to compete with the employer. This consideration can come in a form of confidential information, stock options, or some other benefit. See Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011). Therefore, make sure to review the employee’s benefit file for any compensation and benefit agreements that might contain a non-compete provision.
STEP 2: Interview Relevant Witnesses (and obtain affidavits when possible)
Now that you have gathered the relevant documents, reviewed them, and have a reasonably good idea of which non-compete provision(s) govern the employee’s actions, you should contact potential witnesses of his activities that are in violation of the non-compete.
Start with interviewing your current employees who have worked with this individual. If they work with the same customers or in the same geographic area as the offending ex-employee, they might have specific information about his post-employment actions. Being the employees of the company, they have an added incentive to be helpful.
Then, consider interviewing your clients or customers, who might be able to confirm a suspected violation of a non-compete agreement. Of course, you will want to consider what effect such communication will have on your client relationship. Some customers might not think twice about sharing the information with you, while others might be extremely reluctant to get involved in a dispute between a company and its former employee.
Somebody from your general counsel’s office should be conducting the interviews, or at least be present at them. First, they know exactly the type of information they need to obtain to establish a violation of a non-competition agreement. Second, any customers or employees that know about the violations might become witnesses in a court proceeding later on, so it is important to establish a relationship between them and the company’s lawyers as early as possible. Finally, if a customer or an employee is particularly helpful, you will want to obtain their affidavit, and an attorney who is familiar with the facts will be able to draft one quickly. Such affidavits are crucial to obtaining injunctive relief, and after providing a sworn statement, the customers or clients are less likely to change their story later.
STEP 3: Issue Litigation Hold Preserving Electronic Evidence
After conducting the interviews, you should have a pretty good idea of whether your ex-employee is, indeed, violating his non-compete agreement. At this point – and you must act quickly – you should issue a preservation hold within your company directing appropriate people to preserve any documents that might be relevant to your legal dispute with the ex-employee.
You will want to send an email to the appropriate departments directing them to preserve:
(1) former employee’s email – many companies automatically delete emails after a certain time, so make sure your IT department stops this process with regard to the relevant email;
(2) former employee’s desktop computer, laptop, IPad, and any phones that your company has provided to him;
(3) security footage or records showing when the former employee entered the building and/or his office prior to his departure from the company;
(4) former employee’s internet browsing history.
Most of this information, especially when it comes to the ex-employee’s laptop or desktop computers, might be long gone by the time you find out that the former employee is violating his non-compete agreement. Therefore, it is usually a good practice, to have your IT department or a forensic technology specialist take a snapshot of an employee’s computer before his or her departure if you know that the employee is subject to a non-compete restriction. While it might be expensive to do so, such a preventative measure might save you a lot of money in the long term, especially if the employee is departing on bad terms.
So, now you have determined which non-compete agreement applies to the employee, you have talked to witnesses who have given you a first-hand account about the employee’s activities that seem to violate the non-compete agreement, and to top this off, you have found emails from the employee transferring company customer lists or confidential information to his personal email account. What do you do now? I will discuss the next steps in Part II.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. His practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.