Tag: Enforcing Non-Compete in Texas

A Texas Court Refuses to Enforce a Non-Compete Agreement In a Case Involving Every Employer’s Worst Nightmare

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Legal News

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Last week, a federal court in Texas refused to enforce a company’s non-compete agreement against four key employees who started a competing business because the agreement was missing a key term – the end date.  The company argued that the court could rewrite the non-compete to add a reasonable end date (a procedure sometimes allowed in Texas) but the court refused to do it holding that it could not fix an unenforceable agreement. Thus, the four employees who started a competing business remain free to compete and solicit the company’s clients. 

The company argued that while the employees worked there, they, collectively, were exposed to all kinds of confidential information, including company-wide strategic plans, OEM relationships and pricing levels, details of written and oral contracts with customers, manuals, forms, techniques, methods and procedures at the company,  the Salesforce database that contained a list of all company customer contacts and point persons within the customer, as well as specific notes from customer visits and discussion points, cost of materials, and the company’s product margins.   The company also told the court that it allowed the departed employees to entertain customers and reimbursed them for expenses, and paid for their cell phones used to communicate with such customers.  

Nevertheless, because there was no evidence that the employees took any confidential information with them when they left and because the company admitted that its product manufacturers and customer information were not confidential, the company could not stop the employees from competing once the court declared the non-compete agreement not enforceable. 

BOTTOM LINE: The above situation can be avoided through simple practice of: (1) knowing what is in the company non-compete agreements; (2) making sure all the key provisions required by the relevant statutes are included; and (3) periodically updating non-compete agreements so that they are compliant with the relevant state law.   

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.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

 

Are Non-Compete Agreements Enforceable in Texas?

by Leiza Dolghih, posted in Breach of Contract, Employment Agreements in Texas, Law, Non-Compete Agreements in Texas, Non-Solicitation Agreements in Texas, Small Business Help, Texas Employment Law, Texas Legal News

kkGenerally, Texas allows non-compete agreements between employers and employees as long as they are reasonable in scope, geographic area, and term, and meet a few other requirements. See my previous posts about those requirements here, here, and here. 

Practically speaking, however, whether a particular non-compete agreement is valid depends heavily on the exact language used in the agreement.  Just as with any other contract, Texas courts will usually look at the precise language of a particular employment agreement to determine what the parties had in mind when they entered into it. 

Last year, a hospitalist group in Houston learned the above principles the hard way when it attempted to enforce a non-compete covenant against a physician who went to work for a competitor and discovered that the non-compete did not prohibit the physician from doing so. 

In Tummalla et. al. v. Total Inpatient Services, P.A., the non-compete clause between the hospitalist group and the physician stated the following:

6.2 Non–Compete. In consideration for the access to the Confidential Information provided by [TIPS] and in order to enforce the Physician’s Agreement regarding such Confidential Information, Physician agrees that he/she shall not, during the term of this Agreement and for a period of one (1) year from the date this Agreement expires pursuant to Section 8.3 or is terminated by Physician pursuant to Section 8.6 (the “Restriction Period”), without the prior written consent of [TIPS], except in the performance of duties for [TIPS] pursuant to this Agreement, directly or indirectly within any Hospital in the Service Area or any other hospital in which the Physician practiced on behalf of [TIPS], in excess of 40 hours, within his last year of employment with [TIPS]:
6.2.1 Provide services as a hospitalist physician to any entity that offers inpatient hospital and emergency department services.
In a separate provision in the same agreement, however, it stated that the physician’s first 12 months on the job were to be considered an “introductory period” during which either party could terminate the employment relationship for any reason. The specific paragraph stated that it applied notwithstanding any other provision in the agreement and it failed to included or mention any non-compete restrictions. 

The court of appeals analyzed these various clauses in the contract and concluded that because the physician terminated his employment with the hospitalist group within the first year, i.e. the “introductory period,” the post-employment non-compete clause did not apply to him. Thus, he was free to compete with his former employer. 

TAKEAWAY FOR EMPLOYERS: Employers should have a qualified attorney draft and/or review their non-compete agreements.  While there are many forms out there, because non-compete agreements in Texas have to be catered towards each employer’s business and because courts will scrutinize the language when determining whether to enforce the agreement or not, using a standard form may result in the employer not being able to enforce it due to gaps in the language or failure to address specific termination situations.

TAKEAWAY FOR EMPLOYEES:  Signing a non-compete agreement without reading it first can result in a major headache down the road and severely limit employee’s career options.  Therefore, employees should always: (1) read the agreement; (2) request a clarification if something is not clear; and (3) keep a copy of the signed agreement for their records.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Defending Non-Compete Agreements in Court – What Evidence Does an Employer Need?

by Leiza Dolghih, posted in Non-Compete Agreements in Texas, Texas Employment Law

Last week, the Fourteenth Court of Appeals issued a ruling in a case involving a non-compete agreement between a legal services company in Texas and its former marketing director. While the facts and arguments made by the parties were pretty ordinary, the Court’s opinion was instructive regarding what evidence employers and employees might need in these types of cases to sway the court in their favor.

Rodriguez worked as a marketing director for Republic Services– a court reporting, process services, and record retrieval services firm – for six years before she went to work for a competitor. While at Republic Services, her duties included making calls to existing and prospective customers, assisting in the pricing of jobs, and assisting other employees in providing customer service.

Rodriguez’s employment agreement with Republic Services contained the following rather standard non-solicitation and non-competitions clauses:

For a period of twelve (12) months after termination of her employment under and pursuant to this Agreement, whether with or without cause, the Employee will not . . . (ii) approach, contact, cause to be contacted, or communicate with any customer or account, for whom Company performed services at any office where Employee performed any duties during the two years immediately preceding Employee’s termination of employment with Company.

* * *

For a period of twelve (12) months after termination of her employment, under and pursuant to this Agreement, whether with or without cause, the Employee will not (i) solicit, divert, or accept orders for record retrieval, court reporting, and other related services for or on behalf of any individual or firm, from any customer for whom Company performed services at any office where Employee performed any duties for two years immediately preceding Employee’s termination of employment with Company or (ii) own any interest in, be an employee of, be an officer or director of, be a consultant to, or be associated in any way with a competitor of the Company within the county, or counties, where Employee worked while employed hereunder. . . .

After Rodriguez went to work for Cornerstone Reporting, Republic Services sued her and her new employer for breach of employment agreement, tortious interference with prospective business relationships, civil conspiracy, and tortious interference with Rodriguez’s employment relationship (against Cornerstone only).

Rodriguez and Cornerstone filed a partial summary judgment motion and argued that the non-compete covenant was unenforceable as a matter of law for two reasons: (1) it contained an industry-wide restriction, which imposed a greater restraint than necessary to protect the business interests and goodwill of Republic Services; and (2) Republic Services failed to provide adequate consideration to make the non-compete enforceable. The trial court agreed with Rodriguez that the non-compete covenant was unenforceable and dismissed all the claims, but the Court of Appeals reversed.

First, the Court of Appeals reasoned that although Rodriguez claimed that the covenant imposed an industry-wide restriction on her, she “offered no evidence about the industry at issue.” In contrast, Republic Services provided evidence regarding specific companies in Harris County that were not its competitors within the “legal services” or “legal support services” industry and for whom, presumably, Rodriguez could have worked despite the covenant not to compete. Thus, Rodriguez failed to conclusively establish that the covenant was an industry-wide prohibition.

Second, the Court of Appeals found that Republic Services provided evidence of adequate consideration to make the non-compete enforceable. It showed that it gave Rodriguez customer and pricing information, trained her on how to use RB8 software, and gave her access to Republic Services’ goodwill. Interestingly, even though RB8 software is not proprietary to Republic Services and can be bought by any company, the fact that Republic Services trained Rodriguez on such software via webinars was sufficient to support the non-compete covenant. This poses an interesting question of whether providing training on Microsoft Suite, for example, or any number of software programs that are not proprietary to the employer who provided the training, is sufficient in itself to establish an adequate consideration for an enforceable non-compete.

Also interesting is the fact that the Court specifically emphasized that Rodriguez often invited her contacts at various law firms to lunches with her boss at Republic Services, which, according to the Court of Appeals, showed that she was provided and took advantage of the company’s goodwill. The natural question here is whether allowing an employee to use the company’s suite or an expense account to entertain potential clients creates sufficient consideration to support a non-compete restriction.

CONCLUSION: An employer should always be able to explain why and how its geographic restrictions, time restrictions and restrictions on the scope of activity of its former employees are necessary to protect its business interests and goodwill. It should also be able to show why such restrictions are reasonable. Documenting what sort of confidential information, training or goodwill has been shared with a particular employee is key to enforcing non-compete agreements. Also, being able to provide evidence about the industry in which the employer operates, its competitors, and companies that are not in competition, can be crucial to defending non-compete restraints.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

Not Including a Buy Out Clause in a Medical Non-Compete Can Be Fatal to Its Enforcement

by Leiza Dolghih, posted in Non-Compete Agreements in Texas, Texas Employment Law

In Texas, non-compete agreements that relate to the practice of medicine must meet certain statutory requirements in addition to the consideration and reasonableness conditions discussed here.  Last week, the Fourteenth Court of Appeals in LasikPlus of Texas, P.C., et al. v. Mattioli  denied a lasic clinic’s application for a temporary injunction against a former doctor precisely because his non-compete agreement failed to comply with one of the requirements, thus allowing the doctor to proceed with the competitive practice while the parties litigated their dispute.

Pursuant to Tex. Bus. Com. Code § 15.50(b), a covenant not to compete relating to the practice of medicine is enforceable against a person licensed as a physician by the Texas Medical Board as long as such covenant:

  1. does not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;
  2. provides access to medical records of the physician’s patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008, Occupations Code;
  3. provides that any access to a list of patients or to patients’ medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;
  4. provides a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and
  5. provides that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.

In LasikPlus of Texas, after working for the laser eye surgery center for nine years, Mattioli, a licensed ophtalmologist, terminated his employment and notified LasikPlus that he was opening his own clinic featuring laser surgical procedures less than two miles from his former clinic’s location.  LasikPlus requested a temporary restraining order (TRO) as well as a permanent injunction seeking to enjoin Mattioli from operating his clinic within the area and for the time-period prohibited by the covenant not to compete. The district court first granted an ex parte TRO, but then dissolved it after the hearing on a temporary injunction.

The Court of Appeals affirmed the district court’s decision after finding that LasikPlus had failed to prove the likelihood of success on the merits on its breach of contract claim. Since the parties conceded that the non-compete agreement did not contain a buy out clause required under Tex. Bus. & Com. Code 15.50(b), the agreement was probably not enforceable and LasikPlus would ultimately loose its breach of contract claim.  Thus, in absence of the required clause, the probability of ultimate success on the merits for LasikPlus was too low to justify a temporary injunction.

The Court of Appeals also explained that while Section 15.50(b) authorized a court to reform i.e. rewrite a buy out clause that was unreasonable, it did not authorize the court to write a buy out clause into a contract where one was absent. The Court of Appeals specifically stated that “there is no indication in Section 15.50 that the legislature intended to invest courts or arbitrators with the authority to reform noncompete covenants to create buy out provisions.  To the contrary, the section as a whole provides that if a noncompete covenant involving a physician does not have a buy out clause, it is not enforceable.” Thus, the Court rejected LasikPlus’ argument that it was likely to succeed on the merits with respect to the reformation request.

In denying the temporary injunction, the district court allowed Matiolli to compete with the clinic while the parties litigated their dispute and also determined that LasikPlus was not likely to prevail on its breach of contract claim because the non-compete agreement was not enforceable.

CONCLUSION:  In Texas, non-competition agreements that relate to the practice of medicine are subject to a specific list of requirements.  Failing to comply with these requirements will result in a non-compete agreement being unenforceable, and, therefore, completely useless.  Thus, the parties should always include a buy out clause in the agreement with an understanding that if they disagree later about the reasonableness of the clause, a court or an arbitrator can be asked to resolve their dispute.

For more information regarding the enforcement or drafting of non-competition agreements in Texas, contact Leiza Dolghih.

In Texas, a Court Can Rewrite Your Non-Compete For You, But It Might Cost You a Pretty Penny

by Leiza Dolghih, posted in Non-Compete Agreements in Texas, Texas Employment Law

Texas courts have the authority to rewrite non-compete agreements that they find to be unreasonable. Thus, a business might be tempted to draft a broad non-compete agreement thinking that when a push comes to shove, it can just ask the court to reform the agreement to make it more reasonable.  However, the recent First Court of Appeals’ decision in Sentinel Integrity Solutions, Inc. v. Mistras Group, Inc., et al., illustrates why relying on reformation as a way of fixing an overly-broad non-compete agreement could end up being very costly to the employer.

At issue in this case was a non-compete agreement signed by Sentinel’s employee, Olson, upon his promotion within the company. The agreement required that he “refrain from competing with [Sentinel] or otherwise engaging in ‘Restricted Activities'” for a period of 3 years after the termination date within a region including 7 cities and 4 counties in Texas, locations in 6 states and 1 country, and  “a twenty (20) mile radius around all customers’ job sites and/or project facilities that [the employee] called on or services on behalf of [Sentinel] in all geographic regions, wherever located.”  Olson only worked at the Sentinel’s Corpus Christi location.

When Olson left to work for another company, Sentinel immediately sued him and his new employer seeking enforcement of the non-compete agreement under Tex. Bus. & Com. Code Ann. 15.50(a) and, alternatively, reformation of the agreement under Tex. Bus. & Com. Code Ann. 15.51(c) if the court found that the covenant was not reasonably limited as to time, geographic area, or scope of activity.

Until the last day of trial, Sentinel maintained that the covenant not to compete was enforceable as written. On the last day, its counsel conceded on the record that the agreement was unreasonable at least as to the geographic area it covered. Still, Sentinel did not request reformation until after the jury returned its verdict requiring it to pay Olson’s $750,000 attorney’s fees. The trial court reformed the non-compete agreement as requested by Sentinel, but also adopted the jury’s award of the attorney’s fees.

The award was based on Tex. Bus. & Com. Code Ann. 15.51(c), which allows a trial court to award an employee against whom a non-compete is being enforced his attorneys fees if the employee proves that:

  • plaintiff knew at the time the employment agreement was executed that the covenant did not contain limitations as to time, geographical area, and scope of activity to be restrained that were reasonable and the limitations imposed a greater restraint than necessary to protect [plaintiff’s] goodwill or other business interest, and
  • plaintiff sought to enforce the covenant to a greater extent than was necessary to protect its goodwill or other business interest.

Sentinel argued on appeal that there was not enough evidence to support the findings under Section 15.51(c), but the Court of Appeals disagreed based on the following:

  • Sentinel’s manager testified that he purposefully made the geographical area covered by the non-compete provision broad “to cover pretty much all of the general areas that we think or anticipate would be covered” and he relied on a provision allowing a trial court to reform the agreement if necessary;
  • The covenant not to compete expressly stated that “Employee and Company agree that the limitations as to time  and scope of activity to be restrained are reasonable,” but it was silent on the reasonableness of the geographic area;
  • Sentinel’s manager sent an email to Olson prior to his signing of the non-compete agreement assuring him that the agreement would not prevent Olson from working as an inspector;
  • Sentinel attempted to enforce the covenant’s ban on competition in “in any capacity” that overlapped with managerial duties at Sentinel, i.e. “inspector, manager, supervisor, dishwasher, it doesn’t matter”;
  • Sentinel attempted to enforce the covenant’s general ban on “competing,” including restricting Olson from working in geographic areas that were not tailored to Olson’s work on behalf of Sentinel or even to Sentinel’s own current business.

CONCLUSION:  Sure, you can always ask a Texas court to reform a non-compete agreement, and the court will most likely do so.  However, if it finds that a company knew at the time the non-compete agreement was executed that it contained unreasonable restrictions and it tried to enforce it to a greater extent than was necessary to protect its business interest, the company might end up paying the other side’s hefty attorney’s fees bill on top of the reformation.

Thus, instead of handing employees a boiler-plate broad non-compete agreement with a hope that a court can later “fix” it if necessary, a business should attempt to draft its non-compete agreements to reflect the particular geographic areas and the job duties of the employees that sign them.

While it is not always possible to know where an employee will end up working over the years, a language in a non-compete agreement that ties the “restricted area” of competition to the area where the employee is going to work, without naming specific geographic locations, plus a reasonable mile radius, can help a company avoid a Section 15.51(c) award.

Similarly, instead of including every possible activity in a list of competitive activities to be restrained, catering the language to the job description of the employee who will be signing the agreement, might help ward off a Section 15.51(c) award.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

Practical Guide to Enforcing Non-Compete Agreements in Texas (Part II)

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements in Texas, Non-Solicitation Agreements in Texas, Texas Business Law, Texas Employment Law

If you have followed the steps in Part I, you might now be in possession of evidence confirming that your ex-employee is violating his or her non-compete agreement. Such evidence will do you no good, however, if the non-compete agreement that you are relying upon is not enforceable. So, before you race to the courthouse asking for a temporary injunction, an assessment of enforceability is in order. This analysis needs to be done quickly, if not simultaneously, with the steps described in Part I.

Over the years, Texas courts have steadily moved toward making the enforceability of non-compete agreements easier. This post addresses the most current general requirements as spelled out by the Texas Supreme Court over the last decade, but beware of the old cases that used to impose additional requirements, but are no longer good law.

In Texas, non-competition agreements are governed by Section 15.50(a) of the Texas Business & Commerce Code, which states that “a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”

Thus, Texas courts require two factors to enforce a non-compete agreement that is ancillary to an otherwise enforceable agreement:

1. There must be consideration.

2. The limitations on time, geographical area, and scope of activity to be restrained must be reasonable.

Question 1: Did the Employee Receive Adequate Consideration for His/Her Promise Not to Compete?

Because Texas is an at will employment state, an employer’s offer of employment can be terminated at any time, is illusory, and does not by itself constitute sufficient consideration for an employee’s promise not to compete. Therefore, an employer must promise its employees something other than an offer of employment in exchange for their signature on the non-compete, which includes confidential information, trade secrets or specialized training provided by the employer. Consideration can also include stock options or other financial incentives that are “reasonably related” to the employer’s interest that is worthy of protection.

Question 2: Are the Limitations on Time, Geography and Scope Imposed by the Non-Competition Agreement Reasonable?

Non-competition agreement must restrain no more activity than is necessary to protect the legitimate business interest of the employer. Texas courts have consistently refused to enforce agreements that prohibit all competitive activity or prohibit employment in any capacity for a competitive entity. The courts have also refused to enforce agreements that prohibit activity unrelated to the work the employee preformed for the former employer.

Similarly, Texas courts have also determined that non-competition agreements that contain no geographical limitations or fail to limit the scope of activity to be restrained are unreasonable and unenforceable. Generally, a reasonable area of restraint consists of only the territory in which the employee worked for the former employer.  Thus, courts in the past have refused to enforce non-competition agreements with nationwide applicability when the employee did not have nationwide responsibilities for the former employer.

While the court in Texas have authority to reform a non-competition agreement to narrow the scope or the geographical area of the agreement so as to make it enforceable, they will not always do so.

So, hopefully, you had legal advice regarding the non-compete agreements when they were drafted and the above issues are not going to prevent you from enforcing them. If not, you need to revise your current non-compete agreements and the employment policies that affect the exchange of consideration to ensure that the above-described requirements are met.

If, after conducting the above enforceability analysis, you believe that your non-compete agreements contain reasonable limitations and the former employee was given some sort of consideration in exchange for signing the non-compete agreement, you might have an enforceable agreement on your hands. I will discuss the next steps of enforcing a non-compete agreement in Part III.

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.

Practical Guide to Enforcing Non-Compete Agreements in Texas (Part I)

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements in Texas, Temporary Injunctions, Texas Employment Law

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.