The ubiquitous cease-and-desist letter. It frequently precedes an IP dispute, and even more frequently, a trade secret or non-compete case. If it is well written (witness Jack Daniels’ splendid letter from last year), it can win you cyber applause. If it is clumsily written, it can expose you to ridicule (see the Hopaurus Rex rebuttal).
But if it is really, really poorly written, can it expose you and your client to civil liability? That is the question posed by two fine blog posts calling attention to the hazards of a cease-and-desist letter sent to a third party, such as a new employer who has hired an employee with a non-compete.
Defamation? No problem. Two weeks ago, Ken Vanko gave his thoughts, largely dismissing the risks of a defamation claim (but reserving judgment on the potential for a tortious interference claim). And this week, Kara Maciel wrote about a recent decision from the U.S. District Court for the District of Columbia, Murphy v. LivingSocial, Inc., which held that an employer enjoyed absolute immunity from a defamation claim for the cease-and-desist letter it sent to a new employer.
As a long time devotee of the cease-and-desist letter, I agree with Ken and Kara. I don’t believe that I have ever worried about a potential defamation claim when sending a letter to a competitor, new employer or other third party. I do my best to keep it as factual as possible by enclosing and citing the agreement in question, identifying the evidence that has been uncovered of any breach or misappropriation, and laying out my client’s contention. This approach was largely endorsed by the District Court in the LivingSocial, Inc. decision.
Tortious Interference with Contract: The Velcro Claim. A claim for intentional interference with contract, however, can be a more troublesome claim. If the former employee is terminated by his or her new employer after the letter is sent, it is altogether possible that the former employee may sue you or your client for tortiously interfering with his contractual relationship with that subsequent employer.
A 2009 Ohio case, Hidy Motors, Inc. v. Sheaffer, illustrates how this claim can unfold. In that case, an employer, Hidy Motors, learned that a former employee, Gary Sheaffer, had joined a competitor in apparent violation of a non-compete. As a result, Hidy Motors notified the new employer that Sheaffer’s employment was in violation of his non-compete with Hidy Motors.
When Sheaffer was fired, he claimed that Hidy Motors’ communication about the non-compete interfered with his contract with his new employer. Hidy Motors’ efforts to dismiss the case were unsuccessful because the court reasoned that its non-compete might not be enforceable. In other words, because the enforceability of that covenant was not certain, Hidy Motors’ justification for interfering with Sheaffer’s employment contract might be lacking. Whether a party is justified or has a privilege for interfering with a contract frequently involve disputed issues of fact, so an employer could find itself going before a jury on an intentional interference claim.
The Takeaway: So how do you reduce your risk from a potential tortious interference claim? Follow the same rules that you would to avoid a potential defamation claim: keep it factual, enclose the agreement, and advise the new employer or third party of your client’s position.
Alternatively, you can elect not to send a letter to the new employer at all. If you are confident that you are ultimately going to be in litigation with the former employee, it may not be necessary to arm him or her with a potential counterclaim.
Finally, you can opt for a middle path: notify the new employer of the non-compete but advise it that you will allow the new employee to remain provided you receive adequate assurances that your customer relationships and trade secrets are properly protected. It will open the door for a compromise and perhaps avoid litigation altogether.