Restrictive Covenants Part III: Enforcement
In earlier posts, we discussed some considerations in drafting restrictive covenants. Today we’ll talk about trying to enforce them.
So your employee has left and you hear he is working for a competitor. He has a non-compete. Your lawyer sends a cease and desist letter and gets a response from another lawyer. Perhaps the response will say “My client is terribly sorry that he violated the restrictive covenant and he promises to stop right now.” If so, go buy a lottery ticket. More likely, you get a response that says, essentially “The covenant is too broad, he’s not using any confidential information, our businesses are very different”, and anything else the lawyer can think of.
So you ramp up for litigation. What does this involve, practically speaking?
You can sue for damages for breach of the restrictive covenant. But trial can be well over a year away, and damages may be difficult to assess, or insufficient to remedy the harm your business is suffering now. If a key employee with specialized knowledge walks out the door and starts competing, he may destroy your business by the time trial comes around. The logical response is to seek an injunction- a court order before trial which prohibits the employee from breaching the restrictive covenant.
Injunction applications are heard by a judge based on affidavit evidence. They are usually brought and heard very quickly. Accordingly, parties bringing or defending such an application need to be prepared tospend a lot of time working with their lawyers, on a very short timeframe, to gather information and prepare affidavits.
A broad range of evidence may be relevant. The Defendant likely will argue that the restrictive covenant is unreasonably broad. The Plaintiff/Applicant will need to show that the restrictive covenant is no broader than necessary to protect its legitimate business interests. The evidence should include:
a) detailed information about the nature of the applicant’s business, market, customers, and suppliers;
b) the former employee's role, details of his current activity in breach of the restrictive covenant, and specifics of how he is harming the former employer's business; and
c) information to show why damages would be inadequate and only an injunction can address the harm being caused.
If an injunction is granted, it will stay in place until trial. Because trial will usually be a year or more away, the injunction application is very important to both sides.
If an injunction is not granted, it is still possible to pursue damages at trial. But by then, if customers and market share have been lost, the damages may not provide much relief.
All of the costs and risks must be weighed when deciding on if and how to enforce a restrictive covenant. There are always uncertainties in the enforceability of the covenant itself and in the injunction process.
The best strategy is to control some of those uncertainties from the outset - draft reasonable restrictive covenants with the intent of full enforcement and then follow through so your employees know that you are serious about protecting your business.
confidential information damages Departing Employees employment obligation injunction non-competition non-solicitation Restrictive Covenant termination