Letter to new employer enforcing restrictive covenants

Where you believe an ex-employee is in breach of restrictive covenants, you might consider taking legal action. You may also have a claim against their new employer. Our letter informs an ex-employee’s new employer that you’ve been advised of breaches of restrictive covenants. It specifies what the covenants are and confirms they’ll be legally enforced if necessary. This can include a claim against the new employer for inducement of breach of contract if they had actual knowledge of the covenants and intended to interfere with them.

A warning shot

Where you’ve good reason to believe a former employee is in breach of one or more of their restrictive covenants (such as non-solicitation of your clients), if you want to take action to protect your business interests, you should start by sending a letter threatening legal action against both the individual and their new employer. Send our Letter to Ex-Employee Enforcing Restrictive Covenants to the former employee. As far as the new employer is concerned, you can use our Letter to New Employer Enforcing Restrictive Covenants. Our letter sets out what post-employment contractual provisions you believe the ex-employee is in breach of and why and then it goes on to state that you believe the new employer has committed the tort of inducement of breach of the employee’s employment contract.

Tort of inducement

The tort of inducement of breach of contract requires both actual knowledge by the new employer of the existence of the ex-employee’s employment contract terms and a deliberate intention to interfere. If the new employer unknowingly and unintentionally procures a breach of contract by the ex-employee, they will not be liable. With this in mind, our letter alternatively states that if the new employer didn’t have actual knowledge of the restrictive covenants, you now put them on notice of the existence of these contract terms. This will make it more difficult for them to later argue that they still didn’t know about the restrictive covenants or that they didn’t intend to induce a breach of contract.

Undertaking

Our letter also requests an undertaking from the new employer, to be given within seven days, that they will not induce a breach, or will immediately cease any action which is an inducement of a breach, of the terms of the ex-employee’s restrictive covenants.

Legal action

Thereafter, if the new employer doesn’t respond or refuses to give an undertaking, it’s up to you how far you want to take the matter. You can either accept the position (particularly if very little damage to your business has been done or is likely to be done by the ex-employee), accept a reasonable lesser undertaking or consider legal action against both the ex-employee and their new employer. Bear in mind that legal action is expensive and time-consuming. Also, you need to be confident that your restrictive covenants are legally enforceable, i.e. they’re reasonably drafted to protect your legitimate business interests.

Remedies

If you go to court, what are your options? The primary remedy is an injunction to prevent the ex-employee from continuing to breach the covenants for the remaining duration of their term. You can also seek contractual damages for any losses you can show you incurred due to the ex-employee’s breach of contract and tort-based damages for the new employer’s inducement of that breach. However, these must be quantifiable and since it’s often difficult to prove actual financial loss, any damages awarded may be nominal. Where the ex-employee was also a director owing fiduciary duties, you could try to seek an account of profits, i.e. a strict account of all profits the ex-employee/new employer has made due to the breaches, regardless of any loss suffered. We’ve drafted our letter as broadly as possible to cover all the various options.