Determining whether to enforce a restrictive covenant or confidentiality agreement against a former employee requires the careful consideration of legal, economic and practical considerations. Here are five questions an employer should consider after learning that a former employee may be engaging in competitive activity.

1. Is the employee subject to any applicable contracts?

The starting point for any discussion of an employer’s rights to restrict competitive activity by a former employee is to identify any applicable contracts that the former employee entered into with the employer, including restrictive covenants, confidentiality/trade secrets agreements or even arbitration agreements. These contracts will shape the course of the dispute. Restrictive covenants may be contained in traditional employment contracts, but they may also be contained in standalone agreements. In some cases, they may even be found in unexpected places, such as stock option agreements.

In the event that an employee has not entered into any applicable contracts, an employer may still have recourse through claims based on a breach of fiduciary duty, misappropriation of trade secrets, unfair competition, conversion or other common law claims, but it is generally preferable to have a written contract upon which to base some claims. Carefully examine the language of the agreements and consult an experienced employment attorney to determine if the activity at issue is restrained by the contracts and if the scope of the contract is lawful under applicable state laws.

2. What is the evidence of breach?

At the outset of a dispute with a departing employee, the employer often has access to the most important evidence before it files a lawsuit. Whenever an employer suspects that a departing employee may be engaging in unlawful competitive activity, the employer should jump into action to quickly review the employee’s recent email history, evidence of file transfers to an external storage device or cloud service, or any other usage anomalies (so long as the employer has previously provided notice that it may access such information at its sole discretion). Although many companies have the in-house technical capabilities to conduct this analysis, third-party electronic discovery vendors can also assist and may have more experience conducting forensic discovery in a litigation context.

A well-designed exit process can serve the dual purpose of reaffirming the departing employee’s obligations to the company (before and after his or her departure), while creating a record that can be used in subsequent enforcement actions. For instance, many employers require departing employees to sign an acknowledgement form indicating that they were not in possession of any proprietary information or were otherwise in compliance with their obligations to their employer. At a minimum, these obligations should be discussed during exit interviews.

Courts do not typically grant temporary restraining orders (TROs) and preliminary injunctions based on assumptions. They enter them based on evidence. You want to be in a position to present objective evidence of a breach whenever possible.

3. What are your goals?

The decision to pursue litigation should never be made lightly. Even in cases where a technical breach can easily be established, the defendant/former employee may be able to establish affirmative defenses or counterclaims that can turn the tables. A company also has to consider any publicity that may result from initiating litigation and how the company might be portrayed. In the worst case scenario, efforts to enforce a restrictive covenant or employment contract could result in a ruling that invalidates not only the contract(s) against the former employee, but any other identical contracts entered into by other employees.

Given these risks, employers should carefully consider their goals and reasonable expectations before firing the opening volley. Is the primary goal to prevent disclosure of valuable, proprietary information? To protect its hard-earned customer or employee base from poaching efforts? To send a deterrent message to other employees and their prospective employers? Or is it simply to punish an employee who left on bad terms? Considering these objectives at the outset will allow an employer to plot an efficient and effective course towards a favorable outcome.

4. Do you want to send a demand letter prior to filing a lawsuit?

Drafting and researching an application for a TRO, complaint and any other supporting documents can be expensive and time consuming. Furthermore, filing a lawsuit escalates the stakes of the dispute and fosters animosity. Where the stakes are already high, the harm caused by the violation is significant and time sensitive, and the employer’s budget can handle the costs, filing the lawsuit as soon as possible creates an opportunity for speedy court intervention and allows an element of surprise that can be incredibly valuable in a TRO hearing. In many cases, however, a pre-suit demand letter provides an opportunity for a cost-effective resolution. Although a pre-suit demand letter can tip your hand to the other side, most lawsuits are not won through the element of surprise. Consider whether the potential harm that would result from a delay of even a few days outweighs the benefits of seeking a non-judicial solution. In the most urgent circumstances, an ex parte TRO may be an option, but courts are generally reluctant to enter injunctive relief without notice to the enjoined party.

5. Do you have claims against the former employee’s new employer or other third parties?

In addition to bringing claims against the breaching former employee, an employer can consider bringing claims against the new employer that hired the breaching party. For instance, if the new employer had knowledge of an employee’s non-compete obligations, but nonetheless chose to hire them to engage in directly competitive activity, then the new employer could be liable for tortious interference with contract. Bringing claims against the new employer generates an opportunity to reach into deeper pockets in the event that substantial economic damages could be assessed. The downside, however, is the risk that the new employer will be more willing to fund the defense of the employee once it has been brought into the lawsuit. Additionally, a company should expect that its decision to pursue claims against a competitor may have consequences outside of the lawsuit, such as spurring more aggressive business tactics or encouraging the competitor to file a similar lawsuit if the tables are turned in the future. In some cases, the act of trying to discourage another employer from hiring an employee based on a facially unenforceable restrictive covenant agreement can, in and of itself, give rise to a claim for tortious interference with contractual relations. For this reason, knowingly adopting overbroad restrictive covenants often increases the risks of a negative outcome.