In this four-part series, we will discuss the importance and use of post-employment restrictions in the pharmaceutical and biotech industries. Each part of the series will address a topic of interest, including:
A properly drafted and executed post-employment agreement is not worth the paper it is written on if the employer does not take the appropriate steps to enforce the agreement. Usually, employers enforce such agreements by filing a breach of contract lawsuit, and asking a court quickly to order the former employee to abide by terms of the post-employment restrictions. However, courts are often hesitant to enforce such restrictions, so employers should take certain steps prior to and in the process of filing such a lawsuit.
Before Filing a Lawsuit:
1. Create and maintain an enforceable agreement
If the drafting or execution of an agreement containing post-employment restrictions is flawed, an employer will face a steep uphill battle in trying to enforce the agreement. To help ensure that the agreement is drafted and executed properly, employers should take the following steps:
2. Be consistent
To convince a court to enforce such agreements, employers should adopt a consistent enforcement protocol with respect to agreements containing post-employment restrictions.
For example, consider a situation in which a sales employee subject to post-employment restrictions leaves his/her employer to work for a competitor. The employer may be inclined not to enforce the restrictions because that particular employee is a poor performer or the new employer is a minor competitor (or for other reasons). While allowing this particular employee to violate his/her post-employment restrictions may have no direct impact on the employer, such a decision could limit the employer’s ability to enforce post-employment restrictions for the next sales employee to leave the company. By selectively enforcing the restrictions, the employer might limit its ability to establish that it has interests worth protecting. Courts may reason that if an employer’s trade secrets or goodwill are, in fact, a valuable and protectable interest, the employer would not allow any employee to violate his/her post-employment restrictions.
3. What goes around, comes around
Likewise, employers will encounter applicants who are subject to post-employment restrictions from previous employers. Hiring these employees will not only make the employer a likely party to litigation, it may limit the employer’s ability to enforce its own agreements containing post-employment restrictions—particularly if the new employer is not careful.
When justifying the hiring of an employee subject to post-employment restrictions, a new employer will usually attack these restrictions. Methods of attack include: that the former employer does not have trade secrets, that the employee’s former position and current position do not involve customer goodwill, and that measures can be taken such that the former employer’s interests can be sufficiently protected, while still allowing the employee to work for the new employer.
These very arguments can, and often are, thrown back at the employer when one of its own employees leaves to work for a competitor. The employer will be hard-pressed to refute these arguments after making them, unless they have been made in a way that is very careful, focused, and specific.
When Filing a Lawsuit
1. Ensure that the restrictions sought are no broader than necessary
When seeking a court order restricting a former employee’s post-employment activities, the employer should limit the restrictions it seeks what is necessary to protect itself. For example, a sales employee who had no access to trade secrets may have signed an agreement containing comprehensive post-employment restrictions (e.g., non-competition, non-solicitation of customers, etc). However, when the employer seeks to enforce the agreement against the sales employee, it may only need to enforce the non-solicitation restrictions.
Similarly, the duration of the restrictions should be limited only to what is necessary to protect the former employer. If, for example, a product or device’s life cycle is twelve months, an eighteen-month restrictive period may be overbroad.
In the current economy, courts are likely to be very cautious before preventing an individual from working at the employer of his/her choice. So employers should evaluate each situation on a case-by-case basis to ensure that restrictions sought are no broader than necessary to protect their interests. Overbroad restrictions likely won’t be entertained by the courts, and an employer who overreaches jeopardizes its ability to have its restrictions enforced at all.
2. Be able to demonstrate that monetary damages are insufficient or cannot be calculated
In a typical lawsuit, a dispute will make its way through the court system, and monetary damages can be awarded if there was wrongdoing. When asking a court to restrict a former employee’s post-employment activities, the employer will need to demonstrate that such restrictions are necessary, and that simple monetary damages for the former employee’s violation of the restrictions are insufficient or cannot be calculated.
Thus, when preparing a lawsuit seeking to restrict a former employee’s activities, the employer should gather documents and information to demonstrate how the alleged misconduct cannot be rectified through payment of damages. For example, the damages caused by the misappropriation of clinical trial results may not be able to be quantified, because those results could lead to the accelerated development of competitive products by other companies, the streamlining of clinical trials for competitors, and create countless other ramifications. Each pattern will be different, but an employer must address these issues each time it seeks to restrict a former employee’s post-employment activities.