Dealing with a non-compete or non-solicitation violation checklist: Free template

Dealing with a non-compete or non-solicitation violation checklist

This checklist provides a structured approach for handling potential violations of non-compete or non-solicitation agreements by former or current employees. It walks you through reviewing the agreements, investigating the facts, and determining appropriate legal action to protect your business.

By using this checklist, you can ensure compliance with state laws, reduce potential damage to your business, and take the necessary steps to enforce your rights.

How to use this checklist

Here’s how to use the checklist to effectively handle potential non-compete or non-solicitation violations:

• Step-by-step guide: Start by reviewing the signed agreements with the employee, including employment contracts, stand-alone non-compete/non-solicit agreements, and any other related documents. Verify if the employee's actions fall within the restricted geographical area or timeframe, and whether the specific conduct is prohibited by the agreement.
• Tailor to your situation: Customize the checklist based on the state laws governing your agreements. Some states have stricter requirements for enforcing non-competes, while others may not enforce them at all for certain categories of workers (e.g., low-wage employees). Make sure to adjust your approach according to the state jurisdiction of the employee.
• Investigate employee actions: Conduct a thorough investigation into the suspected violation. This includes reviewing the employee’s electronic communications, documents they may have accessed, and any confidential information they may have misused. If the employee has moved to a competitor, consider whether they have solicited your clients or recruited other employees.
• Involve the right teams: Engage your legal and HR teams early to ensure that you comply with relevant laws and internal policies. The legal team can guide you on enforceability and whether to pursue informal actions (like a cease and desist letter) or formal legal action (such as filing for an injunction).
• Document everything: Maintain records of all relevant actions taken, including investigations, interviews, and communications with the employee. If you need to escalate to court action, having a well-documented trail will help demonstrate your case and show that you took reasonable steps to resolve the issue informally.
• Regularly update: Laws and regulations regarding non-compete and non-solicitation agreements evolve frequently. Ensure your policies and agreements are regularly reviewed and updated to stay compliant with changing legal standards.

Checklist

Review documents

[ ] Gather all relevant documents, including any non-compete or non-solicit agreements or provisions signed by the employee.

[ ] Employment contracts.

[ ] Stand-alone non-compete or non-solicit agreements.

[ ] Employee handbooks and acknowledgment forms.

[ ] Separation or severance agreements.

[ ] Release of claims agreements executed as part of a settlement or anticipated litigation.

[ ] Review the language of the agreements to check whether the employee’s suspected actions violate any terms.

[ ] If the actions took place within the restricted geographic area.

[ ] If they occurred within the restricted time frame, including any extensions.

[ ] If the agreement specifically prohibits the type of conduct in question.

Assess whether the restrictive covenant is enforceable

[ ] Understand that enforceability varies by state statutes and common law.

[ ] In states like California, post-employment non-compete covenants are void unless they fall under narrow exceptions (e.g., business sales).

[ ] In states like Massachusetts and Illinois, non-competes must meet specific statutory requirements to be enforceable.

[ ] Some states prohibit non-competes for low-wage workers or certain categories of employees.

[ ] Many states apply a reasonableness test to assess geographic limits, duration, and scope of the restrictions.

[ ] Consider how courts analyze non-compete vs. non-solicitation clauses.

[ ] Evaluate enforceability based on all relevant facts.

[ ] Adequate consideration was provided for the employee’s agreement (this may vary by state).

[ ] The employer has a valid, protectable interest in enforcing the agreement.

[ ] The restrictions on geographic scope, duration, and activities are reasonably tailored.

Investigate the employee’s activities

[ ] Investigate the suspected activities immediately.

[ ] Contacted clients or customers to solicit their business.

[ ] Tried to recruit employees to their new employer.

[ ] Used the employer’s time, property, or systems (e.g., emailing client lists).

[ ] Physically removed files or documents from the premises.

[ ] Copied, downloaded, printed, or taken electronic files without authorization.

[ ] Sent files to cloud storage providers without permission.

[ ] Destroyed any physical or electronic files, including customer data or sensitive documents.

[ ] Investigate whether the employee took or misused confidential information.

[ ] Confidential or trade secret information.

[ ] Customer information, business plans, or financial data.

[ ] Marketing, sales, or pricing information.

[ ] Contracts or agreement terms.

[ ] Inventions or unpublished patents.

[ ] Software, code, or computer programs.

[ ] Strategic plan documents.

[ ] If trade secrets were taken, consider remedies under the DTSA.

[ ] A court order to preserve evidence or prevent further disclosure.

[ ] Compensatory or exemplary damages.

[ ] Attorneys' fees, if bad faith is demonstrated.

[ ] Verify whether proper DTSA immunity notices were included in relevant agreements since May 2016.

[ ] Review employee work emails and computer activity for suspicious behavior. Ensure monitoring complies with legal requirements.

[ ] Create a forensic copy of employee devices (e.g., laptop, phone, flash drives) to preserve evidence.

[ ] Interview the employee to gather information, while balancing risk of alerting them too soon.

[ ] Speak to co-workers or witnesses about potential solicitation, recruitment, or file removal.

[ ] Complete internal investigation before employee interview. Consider potential disciplinary action after conclusion.

Consider informal legal action

[ ] Assess the situation based on several factors.

[ ] How likely it is that a court will enforce the restrictive covenant.

[ ] The severity of the employee's actions.

[ ] The harm already caused and any ongoing risk to your business.

[ ] Whether the harm can be reversed or prevented from escalating.

[ ] The message you want to send to other employees about compliance.

[ ] Consider sending a cease and desist letter to the employee outlining their violations and demanding they stop immediately.

[ ] Encourage the employee to comply with the non-compete or non-solicit agreement.

[ ] Show the court you took reasonable steps before pursuing litigation.

[ ] Notify the employee’s new employer carefully to avoid escalation or legal claims.

[ ] Defamation or libel.

[ ] Tortious interference with the employee’s business relationships.

[ ] Consider stopping severance or benefits if the employee is in breach, provided this does not violate any agreement.

Consider formal legal action

[ ] Consider filing for an injunction to stop further harm.

[ ] Understand the types of court-issued injunctions available depending on the situation.

[ ] Temporary restraining orders (TRO): Quickly stop the employee from disclosing trade secrets, using confidential information, or soliciting clients.

[ ] Preliminary injunctions: Issued after a hearing and last until settlement or trial resolution.

[ ] Permanent injunctions: Final orders to prevent further violations indefinitely.

[ ] Injunctions under the Defend Trade Secrets Act (DTSA): Allow relief for misappropriation without restricting future employment unless there’s evidence of threat.

[ ] In rare cases, seek a seizure order if a TRO won’t work to recover trade secrets.

Evaluate legal options

[ ] Check if the employee’s actions violate the agreement and justify legal action.

[ ] Assess possible interference with contracts by the employee or third parties.

[ ] Consider disruption of potential business relationships even without formal contracts.

[ ] Investigate breaches of fiduciary duties by employees in trusted positions.

[ ] Review trade secret misappropriation and consider federal DTSA claims where applicable.

[ ] Determine if confidential information was used to compete unfairly.

[ ] Assess whether a conspiracy claim applies if multiple parties were involved.

Evaluate potential claims against the new employer

[ ] Investigate if the new employer encouraged theft of trade secrets or confidential data.

[ ] Assess if the new employer used your confidential information, even unknowingly.

[ ] Determine if the new employer aided the employee’s breach of restrictive covenants.

[ ] Be prepared for possible counterclaims if action is taken against the new employer.

Minimize the risk of future violations

[ ] Review restrictive covenant agreements and ensure enforceability under state laws.

[ ] Monitor legal developments and update your policies regularly.

[ ] Reinforce post-employment obligations at the time of termination.

[ ] Consider notifying the new employer about ongoing obligations carefully.

[ ] Remind employees of monitoring policies and acceptable computer use.

[ ] Apply and enforce policies consistently to avoid challenges.

[ ] Assess the effectiveness of your IP and trade secret protection policies and update where needed.

Benefits of a dealing with a non-compete or non-solicitation violation checklist

Using a non-compete or non-solicitation violation checklist offers several advantages for businesses dealing with potential breaches of restrictive covenants. Here’s how it benefits you:

• Ensures compliance: By following a structured checklist, you can make sure your actions are aligned with state-specific laws and regulatory guidelines, reducing the risk of legal missteps.
• Protects business interests: A checklist helps you efficiently assess violations and take swift action to safeguard your business from potential harm, such as client poaching or misuse of confidential information.
• Streamlines the investigation process: With clear steps outlined, the checklist simplifies the process of investigating employee activities, making it easier to gather relevant evidence and identify any breaches.
• Reduces costly legal action: The checklist helps you evaluate informal legal steps, such as cease and desist letters, before escalating the issue to court, potentially saving time and legal expenses.
• Improves enforceability: Regularly using this checklist helps you monitor and update your restrictive covenants, ensuring they remain enforceable and compliant with evolving legal standards.

Frequently asked questions (FAQs)