What Can A Business Owner Do if an Employee Breaches a Non-Compete Agreement?

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Some businesses require their employees to sign non-compete agreements to protect their business interests. Generally, non-compete agreements prohibit certain conduct, such as working for a competitor for a specified period.  Sometimes employees violate the terms of such agreements and the business must consider how to react to this violation.

What Are Non-Compete Agreements?

A non-compete agreement is an agreement where one party agrees not to compete against the party. A non-compete agreement may prohibit employees from soliciting existing clients of the business or from working for a competing business within a certain distance from the business. Wisconsin law requires non-compete agreements to be reasonably necessary for the protection of the business. The agreement’s terms must be reasonable in scope, duration, and geographic restrictions.

Remind Your Employees of The Obligations When The Relationship Ends

There’s a lot of truth to the saying that “an ounce of prevention is worth a pound of cure.” Business owners can take some preventative actions before an employee leaves to avoid suffering more significant harm.

Notably, most non-compete agreements do not take effect until the employee leaves the business by quitting or being terminated. Business owners should remind departing employees of their continuing obligations under the non-compete agreement upon termination. Employers should provide notice of the restrictions during an exit interview. The employer should review the terms of the non-compete agreement so that employee understands their obligations. The employee should be informed that the employer may take action if the agreement is violated.

During the exit interview, employers should assess whether there are any threats posed by the departing employee. For example, the employee may inform the interviewer that they have a job lined up with a competitor. An employer who learns of such information should explain the non-compete agreement’s restrictions. Additionally, if an employee has a job lined up but does not disclose it during the exit interview, this omission may later be used to challenge his or her credibility if litigation ensues.

The exit interview also allows the business to ensure that security measures are being followed. The business should ensure that the employee does not have access to any client lists or other proprietary information. Business owners should have checklists regarding the information that they need to recover from their employees. The business owner may also ask the employee to agree that the business can send a copy of the non-compete agreement to a future employer if such employment may violate the agreement.

Protect Your Relationship With Customers

If the departing employee had direct contact with customers, the employer can take additional steps to protect the customer relationship. For example, the business can explain that the former employee is no longer with the company. It can give the name and number of the new point of contact or introduce these parties together. The business should take these actions immediately after learning that the employee is leaving the company.

Contact the Former Employee’s New Employer

If the business learns that the employee is working for a competitor, it may be wise to contact the new employer. The new employer should be advised that the employee is under the contractual obligations of the non-compete agreement. This alerts the new employer the employee may be violating the agreement and may not be available for hire. This may help gather information regarding whether the work that the former employee will be performing violates the agreement.

Send a Cease and Desist Letter

Another way to handle the situation is to send a cease and desist letter. Typically, the business’s lawyer will send the cease and desist letter to the former employee and the new employer. The business should advise the employee that he or she is violating the agreement and should be ordered to stop. The letter should contain a summary of the contractual agreement, and citations to case law that demonstrates that the employee is in breach of the non-compete agreement. The business should advise the employee that it will seek damages if the violations are not stopped.

File A Lawsuit

A business may consider litigation against the former employee if other efforts have failed. A business should have a strong understanding of the common law and statutory requirements of non-compete agreements in the jurisdiction. A lawyer can review the contract and assess whether the agreement is likely to be enforceable. The attorney can then assist pursue damages that the business has suffered by filing a lawsuit.

Let it Go

There may be situations where a business is happy to be rid of the former employee or that the individual may not be capable of materially harming the business. In such circumstances, it can make financial sense for the business to choose to overlook a particular former employee’s indiscretions. Before proceeding to litigation, business owners should discuss the pros and cons of litigation with their counsel

Need Help?

Murdock Law counsels many businesses with a wide range of business issues including non-competition agreements. We are happy to talk about the issues impacting your business.

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