To sue or not to sue -- a tough decision

The decision of whether to sue an ex-employee who has taken or is using company information requires consideration of a number of factors.

Suing and seeking injunctive relief may be the only choice

If the departing employee was an important manager or sales representative, then the company may have no alternative than to sue and seek to enjoin the employee from working for a competitor or using confidential information. If there is strong evidence to support injunctive relief, then a complaint and motion for temporary restraining order (TRO) should be filed immediately. Before commencing litigation, the employer should secure and examine any electronic data that might be stored on company devices. If the potential harm is great, then the company should immediately retain a forensic expert to examine hard drives and other electronically stored information and email traffic. The employer should conduct the investigation without the employee's knowledge so as to avoid efforts by the employee to hide or delete evidence of misconduct.

Alternatives to seeking a temporary restraining order

In circumstances where the company has a reasonable belief of misconduct but is unsure whether a court will issue a restraining order, it may want to move initially for expedited discovery and seek to obtain documents or take depositions. Depending upon what it has learned from the expedited discovery, the company can decide whether to pursue injunctive relief. Another alternative to seeking an immediate injunction to preclude the former employee from working for a competitor is seeking a court order enjoining the employee to maintain status quo of his or her electronic devices, to produce the devices for data imaging, and to prevent disclosure of the employer's confidential information.

How will the employer be harmed?

An employer should make a cost-benefit analysis of whether the employee can cause any serious damage to the company. If the employee is an underperformer or if the individual has not been given confidential information, then a lawsuit may not be useful. On the other hand, if the former employee was a high achiever who had access to confidential business information and likely has been recruited by competitors, then if evidence exists of misappropriation of company information or solicitation of the employer's clients or employees, litigation may be the only alternative.

Is sending a cease and desist letter enough?

Typically, letters written by the company to a former employee demanding that he or she cease and desist from violating restrictive covenants prohibiting use or misappropriation of confidential information or solicitation of clients or employees are ineffective to bring about a cessation of those activities. However, letters reminding employees of their obligations and restrictions can be effective to put the former employee and his or her new employer on notice. Even if the letters do not operate to bring an immediate halt to planned or actual misconduct, there is real value in reminding the individual of those restrictions if it later becomes necessary to sue. And, a letter to the company that has employed the individual may cause that company to have second thoughts about its hiring decision or may assign the individual different duties so as to minimize the risk.

What claims should be included in the lawsuit?

In addition to seeking injunctive relief, if an employee signed a confidentiality, nondisclosure, nonsolicitation or noncompetition agreement, then a complaint should include a breach of contract claim seeking damages. If the employee engaged in inappropriate activities while still employed, then the complaint should include a breach of loyalty claim. In circumstances where the individual has misappropriated trade secrets (possibly including customer or business information), then a statutory claim may be brought for misappropriation of trade secrets that may allow for attorney's fees and double damages. Where a former employee is interfering with current and prospective contractual and economic relationships with clients and current employees, then a tortious interference claim should be brought. If an employee has taken or destroyed documents or electronic devices, then a conversion claim should be included. An employee who makes misrepresentations can be sued for fraud. Where there is unauthorized use of or tampering with or destruction of the company's electronic devices, then a claim may be asserted under the federal Consumer Fraud and Abuse Act (CFAA).

Where to sue

If the employee signed an agreement, then it may require claims be brought in a court of a particular county or state, often where the company is headquartered. Based upon the facts, a company may be able to choose to file in federal court rather than state court. Also, the procedural rules of some courts may result in some delay before an injunction hearing is set or expedited discovery is allowed, so selection of the forum within which to sue is important.

Practical considerations

If there is a risk that employees may engage in similar misconduct, then it may be important to commence litigation and send a message to co-workers that the company will pursue its legal options. The nature and financial capability of the defense should also be considered. An individual who is going to work for a large, well-funded competitor may have an arrangement that the new employer will provide defense costs. Litigation costs cannot always be controlled. If a lawsuit is vigorously defended, then the suing employer may have to respond to discovery requests and motions, notwithstanding the merits of the case.

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Richard Hunt is a partner at Barran Liebman LLP. He represents employers in employment law matters, including trade secrets, noncompetition agreements and departing employee disputes. Contact him at 503-276-2149 or rhunt@barran.com.

Published: Tue, Apr 26, 2016