Restrictive covenants in contracts largely serve as deterrents to prevent misconduct. Vendors, independent contractors, business partners and employees for subject to restrictive covenants may avoid taking certain jobs, releasing non-public information or attempting to solicit customers for a different business. Businesses may have outside parties sign noncompete, nondisclosure or nonsolicitation agreements to protect the organization.
If an agreement is not enough of a deterrent to prevent misconduct, how can companies enforce restrictive covenants?
Filing a lawsuit may be necessary
Occasionally, sending formal notice about the violation of a restrictive covenant, possibly through a cease-and-desist letter, can be enough to halt unfair competition and other forms of misconduct. Other times, written notice alone does not stop a former employee or other outside party from continuing with questionable behaviors.
Filing a lawsuit requesting an injunction and possibly an award of damages is an appropriate response to a documented violation of a restrictive covenant. So long as there is evidence that one party made inappropriate disclosures, solicited former coworkers or clients, started a competing business or took a job with a direct competitor, it may be possible to uphold and enforce a restrictive covenant through business litigation.
A successful lawsuit can result in a court order prohibiting additional misconduct. The courts can also award financial damages in cases where the breach of a restrictive covenant has direct economic implications for a business.
Reviewing an original restrictive covenant and the alleged violation with a business litigation attorney can help executives and owners explore their options. While many contract enforcement lawsuits settle, filing a lawsuit is often necessary after the breach of a restrictive covenant.