Shortly after hiring a new employee, your company might receive a Cease and Desist letter telling you that the employee you’ve hired is subject to a non-competition or non-solicitation agreement with their former employer. The letter might demand that you terminate the employee or take steps to ensure the employee does not breach their contractual obligations to the former employer.
While such letters are often empty threats designed to intimidate a competitor, there are some steps you should take to ensure your company is protected against potential liability. The purpose of sending a Cease and Desist letter is to give the recipient notice of a potential breach or harm being caused and, optimistically, to receive compliance with the demand.
Before You Receive the Employment Cease and Desist Letter
The first step you can take happens before you receive the letter. You can ask incoming employees if they are subject to any contractual limitations that may impact their work at your company. If they are, it is appropriate to ask the employee for a copy of the contract so you can determine whether engaging them could result in a claim being brought against your company. From there you can decide whether or not to proceed with hiring the employee or what tasks may be kept away from the employee during the restriction period.
Examining the Restrictions
After receiving the Cease and Desist letter, you should ask the employee for a copy of the contract in question, if you don’t already have it, so that you can evaluate what restrictions the former employer may seek to enforce. Examining the duration of the restrictions and when they started, the geographic scope of the restrictions, and the type of business restricted may allow you to determine if your business is outside the restrictions of the contract.
We recommend having the contractual provisions reviewed by legal counsel to determine whether they are enforceable or applicable. In many cases, the restrictions being raised are not legally valid or drafted so poorly that there is a low risk of a Court enforcing them.
We generally recommend responding to a Cease and Desist letter by advising the former employer that you are aware of their concerns and confirming no breach has taken place. In many cases, an acknowledgement of a restriction against certain actions, and confirmation the restriction will be honoured, is sufficient to prevent any more serious steps.
Bringing the Application to Court
If the former employer brings an application to Court seeking an injunction or damages, it is important to take such an application seriously and to act quickly. Unlike most elements of litigation where a prescribed time allows for preparation, injunction applications can be heard on very short notice. However, if you are prepared to act decisively, applications of this nature create an opportunity to very quickly resolve all matters at issue. It is possible to have a Court make meaningful findings at this early stage that will effectively prevent the former employer from proceeding any further with their complaint.
Pursuing or defending an injunction is an expensive endeavour, so evaluating the costs and benefits is an important part of the strategic approach of seeking to enforce employment restrictions.