Can You Sue Former Employees that Compete with Your Business?

For start-ups, employee retention can be a big problem. In addition to having to recruit replacements that will believe in the company enough to accept stock options or future promises in lieu of a bigger salary, each employee that leaves the company could be leaving with important intellectual property and trade secret information that would be valuable to competitors.

Recently, Magic Leap, a company seeking to be a pioneer in the way people view AR computing, filed a lawsuit against competitor Nreal and the company's founder. The lawsuit alleges that a former employee stole Magic Leap’s ground-breaking intellectual property to start a competing Chinese company, allegedly utilizing Magic Leap’s tech.

Non-compete Clauses

Generally, if your company's intellectual property is properly protected, you can sue former employees who try to trade on that information, along with their new employers. Additionally, if your business utilized a non-compete in its employment agreements, then there might be another avenue to take legal action against a former employee who tries to leverage your business's information capital for their own purposes.

A business's non-compete clause should stay within the bounds of reasonableness to be considered enforceable. These bounds of reasonableness include prohibiting the use of company IP and trade-secrets, being for a reasonable amount of time, containing reasonable geographic restrictions and avoiding total bans on working within a trade or industry.

How to Avoid Suing Former Employees

While it may not sound like a popular opinion, avoiding lawsuits against former employees that violate non-compete agreements, or even steal IP, is usually preferable for your boardroom and business's bank account.. Consider alternatives, such as offering to settle the case with the former employee's new employer for a licensing deal or allowing them to continue to use your IP for a reasonable licensing fee. Alternatively, negotiating a deal pre-lawsuit to put an end to the use could also resolve the matter short of a litigation spending spree. Sometimes, there may be no option but to sue to stop the infringing conduct.

If you're concerned about employees jumping ship to your competitors, or have other concerns about your business's intellectual property and trade secrets, reach out to a local attorney to learn more about your rights as a business owner. The reality is it's easier than ever for a previous employee to start their own company and form an LLC online. 

Related Resources:

• Find a Business and Commercial Attorney Near You (FindLaw's Lawyer Directory)
• Does Your Startup Idea Violate Your Contract? (FindLaw's Free Enterprise)
• Is Your Non-Compete Clause Valid? (FindLaw's Free Enterprise)