Enforcing non-competition clauses

If one of your former employees enters into an employment contract with a competitor, this can cause considerable damage to your business. Customers may follow the employee to his new company, business strategies and trade secrets may become known in the wrong places, business processes may be copied and access to vital profit margin information given to the wrong people… …  Is there anything that can be undertaken against this? If you take legal action, will this come back to you like a boomerang? Will the benefits of taking legal action outweigh the costs? The answers.

What can be done?

If a non-competition clause is included in the employment contract, the employer may take action to enforce this. Initiating proceedings is not the first step. In practice, a strong letter demanding immediate cease of the activities in breach with the non-competition clause and stipulating that the contractual penalties are accruing, can be very effective.

A  letter can also be sent to the new employer warninging him that he has employed someone who is bound by a non-competition clause. The letter may mention that the new employer will be liable towards the former employer now that he stands to gain from the breach of the contractual nonc-ompetition clause to which the employee is bound. In some cases such a letter leads to the immediate dismissal of the employee, especially if he has not informed his new employer about the fact that he had a non-competition clause in his previous employment contract.

In both situations, a letter from a lawyer containing the right wording is often taken more seriously than a letter from the former employer. A lawyers letter can therefore be an intermediate step in the enforcement process.

concurrentiebeding 2Most non-competition clauses state that the penalty for the breach of the non-competition clause is immediately due , without further warning. Therefore the penalties already accrued can also be claimed in the warning letter. To enforce payment with the help of a bailiff, an employer still needs judicial intervention.
If the former employee disregards the warning, the next step will be to initiate proceedings to take him to court. In view of the urgency of the action, summary proceedings are the most obvious legal step to take in case of infringement of the non-competition clause. In proceedings, the employer usually requests that the employee is ordered to comply with the non-competition clause (possibly with imposition of a penalty in addition to the contractual penalties) and that an advance payment on the penalties accrued is effected.

Will proceedings have a boomerang effect?

Employers often fear retaliation on the part of the employee. In response to a lawsuit in which the employer demands that the employee complies with the non-competition obligation, an employee often requests the court to determine that the non-competition clause is not valid, that it should be suspended or canceled or that the employer must pay a fee for the period that the employer wants to enforce the clause.

It should be noted here that interim injunction proceedings are not the proper procedure to claim that definitive rulings. A request for annulment of the non-competition clause or the (final) assigning of penalties will have to be rejected. The court will in principle only take interim measures such as a suspension of the non-competition clause or award the requested advance payment. The decision on such interim measures will be based on the courts expectation about how the matter will be decided in proceedings on the merit. In practice, however, most cases end after the injunction proceedings. Once the parties know how the court thinks about their legal positions, it will be possible to work out some settlement to end the dispute. Still, in some of the cases proceedings on the merits are inevitable.

So the answer is: yes, initiating proceedings will often provoke a procedural response from the employee, but this should not stop you from taking action as the employee does not need your initiative to start proceedings to seek suspension or annulment of the non-competion clause or compensation for the period he will be bound.

Cost – benefit

Litigation is expensive. The case must be analysed, facts investigated, documents drawn up and a hearing must be attended… all at short notice. Doing nothing, however, can be much more expensive. If a competitor can freely benefit from the expertise and relationships of the ex-employee this may lead to great losses. Clients frequently calculate that if only 10% of the portfolio of the employee would follow him to the competitor, the damage would be many times the cost of conducting proceedings. In such cases, proceedings can be the appropriate means to make a point. In practice, even if the proceedings yield little success, the employee prefers to keep a low profile during the course of the proceedings, fearing to provide the employer with additional evidence that can be used against him in the proceedings. In many cases, a settlement is reached prior to the actual hearings , out of fear of the costs and the consequences of losing the procedure.

Proceedings are the culmination of a ban on competition in the employment contract. Without the threat of proceedings a non-competition clause is a weak instrument to fight competition. In some cases it will be necessary to use this instrument.  In many cases, the threat alone is already sufficient. In all cases, the effect of the threat corresponds directly with the credibility of the threat.

Not everyone is a specialist in the field of non-competition clauses. In order to make an informed assessment of the chances of success of your legal position, a thorough knowledge of the specific case-law in the field is necessary. Preferably your advisor in the non-competition dispute does not need to reinvent the wheel during the proceedings – at your expense. It is therefore advisable to choose a lawyer who knows how to use all procedural possibilities and who can anticipate counter-arguments and counter actions. It is also important that the lawyer knows to act swiftly and continues with the necessary speed to resolve the dispute preferably ending the competitive activities of your former employee  yesterday rather than today.

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Are you faced with a competition situation or do you have any questions regarding this article? Please feel free to contact us. We are happy to advise you of the possibilities.

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