Noncompete agreements have become a staple of the employment relationship. These agreements are intended to give employers the ability to protect their business against unreasonable and unfair competition. Such competition usually takes the form of a former employee directly competing against the employer either by starting a similar business or jumping ship for competitor.
But what happens if that former employee is not likely to be a threat to your business either directly or indirectly? After all, if an individual didn’t make the grade at your company, what are the chances he or she will be successful in competing against your company?
Certainly this is a great simplification, but it does capture a frequent fact pattern: An individual employee who would have been given, at best, a C- on a generous curve, goes onto violate his or her noncompete agreement. But does this now mean you must expend A+ resources in the form of management’s time and legal fees to enforce a noncompete agreement and guard against unfair competition?
The Dangers and Risks of Selective Noncompete Enforcement
Not necessarily, but it is critical for a company’s management to commit to expending some degree of resources on the legal enforcement of its noncompete agreements.
In support of this position, consider the following points:
- Noncompete lawsuits often include other issues that damage a company’s bottom line, including misappropriation of trade secret information, unfair competition claims, or claims under the Computer Fraud and Abuse Act. This sort of theft can cripple the continued profitability of a company either by losing its competitive edge or giving a competitor a significant shortcut to catching up to your business. Accordingly, ignoring such threats is simply not an option in an ultra-competitive market place.
- Selective enforcement of noncompete agreements can create multiple downstream issues. For example, I defended against a noncompete and trade secret misappropriation lawsuit filed against a former executive and that executive’s new employer. One of the arguments we were able to make to defeat the plaintiff company’s request for a preliminary injunction and related relief was by showing that on multiple occasions the plaintiff had failed to seek enforcement of the same noncompete agreement and protection of trade secrets.
Cost-Containment Strategies for Enforcing a Noncompete Agreement
So with some foundation laid for enforcing a noncompete agreement across the board, we can now get back to the original issue, that being how to balance the expenditure of A+ resources to enforce a noncompete agreement against a former C- employee.
One strategy that my law firm will offer to business clients are flat-fee packages that management can choose from tailored to common fact patterns. These packages offer varying scopes of services to fit most noncompete enforcement situations while providing cost-certainty to the business.
A second strategy is to make sure your company has a well-drafted employee exit procedure in place. Such a procedure, if done properly, can preempt would-be noncompete enforcement issues or streamline the investigation of supporting facts relevant to enforcing your company’s noncompete agreement if necessary. See Employee Exit Interviews – What’s On Your Checklist? In both instances, however, substantial cost-savings can be realized through eliminating or reducing the time and effort for investigating the facts to support a potential claim for a breach of a noncompete agreement and related issues that usually follow, such as trade secret misappropriation.
At the end of the day, noncompete enforcement is like any other business decision in that the expenditure of resources, e.g., time and money, must be tailored to the situation. And not every noncompete situation is going to require a “scorched earth” litigation strategy. But for most businesses taking the long view, it will require some attention and strategy.
For more information about noncompete enforcement issues in Michigan or strategies for cost-effectively enforcing a noncompete agreement, contact Jason Shinn. Mr. Shinn has consulted with business and individuals about Michigan noncompete law and issues since 2001. He has also litigated noncompete disputes, including obtaining and defending against preliminary injunctions involving the breach of noncompete agreements and trade secret misappropriation claims.