Covenants Not to Compete: Employer Strategies

Tom Pedreira

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From an employer's perspective, it doesn't matter if a covenant not to compete is enforceable if a departing employee and other parties can be sued into submission.

Strategies include:

• Outspending the employee. Many employers will bring a lawsuit with the hope that employees will find themselves buried in litigation expenses they can't afford, so they have to throw in the towel long before their cases ever get to trial.

• Seeking a temporary injunction. If a lawsuit is going to be filed, an employer will not want to give a departing employee the chance to get his or her feet on the ground in a competing business. So the employer will seek a temporary injunction against an employee to preserve the status quo until a full hearing can be held on whether the employee actually violated a covenant not to compete. While temporary in nature, such an injunction could tie your hands for a period of 30 days or more, and this may be enough to put you out of business.

  An employer can take lightening-quick action to get such an injunction issued, so you had better be prepared by already having your own lawyer on board to defend your interests before you ever do anything to violate a covenant not to compete.

• Suing third parties. An employer may choose to sue not only an employee, but also third parties who may have been "accomplices." One primary target would be any competing company that may have either hired or were thinking about hiring the employee. Another potential target would be the co-owners of any business venture the employee may have started in violation of a non-compete covenant.

  The ultimate outcome of filing a lawsuit against such parties may not be as important as the chilling effect it would have on their future dealings with the employee. It is oftentimes the case, for example, that a company will get cold feet about hiring a new employee if they get wind of the fact that they might end up being sued if they do so.

• Scaring other employees into compliance. It is simply a case of making an example out of employees who decide to jump ship in violation of non-compete covenants. If your employer has any track record of doing this with other employers, it may be a harbinger of things to come in your case.

• Relying on laws such as the Uniform Trade Secrets Act. Regardless of whether you are subject to an enforceable non-compete, there are laws such as the Uniform Trade Secrets Act that protect employers from employees misappropriating propriety information. These laws may give an employer the right to sue an employee even without a written covenant not to compete. There may even be a right to recover attorneys' fees.

If you are an employer, you already know the value of sound legal advice in these situations.

If you are an employee, it is likewise extremely important that you talk to your own legal counsel about what to do if you're thinking of leaving your employment under circumstances that might make your current employer come after you for breaching a covenant not to compete.

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