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New Jersey lawyer focusing on special education law and employment law

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The Preemptive Strike

I’ve said it before and I’ll say it again: if a small business does not have proprietary information or trade secrets, it is generally ill advised for small business owners to spend tens of thousands of dollars in legal fees to enforce a non-compete agreement.

In medium or large-sized firms, ex-employees should be concerned when they go on to work for a competing company or open a new, competing business. This is particularly true when the ex-employee signed a non-compete agreement and had access to proprietary information and/or trade secrets.

An ex-employee who signed a non-compete agreement and goes on to work for another competing company nearby runs the risk of getting hit with an enforcement action.

When a company threatens to sue an ex-employee to enforce the terms of the non-compete agreement, the ex-employee has three basic choices:

1. Ignore the threats, do nothing, and wait to see if the ex-employer files a lawsuit;

2. Respond to the threats and hopefully the ex-employer will go away forever; or

3. File a lawsuit against the ex-employer for a declaratory judgment.

The third option is a “preemptive strike.” It is a legal tactic that seeks a court order determining that the non-compete agreement is unenforceable.

If the ex-employee chooses the third option, the company then has three basic choices:

1. Default by failing to respond to the lawsuit;

2. Agree to settle the matter amicably; or

3. Fight back by filing a counterclaim that the ex-employee breached the non-compete agreement and filing a motion for an injunction.

Agreeing to settle is, of course, much cheaper than litigating the matter. There is also better control of the outcome. But whether a company chooses to walk away, settle, or litigate is dependent on a number of factors, including the company’s “war chest,” how much access to proprietary information the ex-employee had, what trade secrets the ex-employee had access to, etc.

The preemptive strike is especially useful before the ex-employee anticipates that she will breach the non-compete agreement — before she works for another competing company or before she starts a new competing business. It mitigates the ex-employee’s risk. As it happens, however, many executives, accountants, medical doctors, and veterinarians, never anticipate the threat of an enforcement action, and therefore, they never really think about consulting with an attorney to discuss whether it is financially worthwhile to pursue a preemptive strike.

Ex-employees and companies that have questions about their non-compete agreements, enforcement action or preemptive strikes should contact an attorney for a consultation.

 

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