When it comes to cease and desists, employees who are careful can, in many cases, avoid costly competitive disputes and earn professional trust and respect in the process. Likewise, employers that proceed reasonably and compassionately can avoid disputes and protect their business interests without unnecessary costs, friction, or loss of goodwill or reputation. Competitive restrictions are an inevitable reality of Oregon's legal landscape and labor market. Neither employers nor employees can ignore them.
Disclaimer: Please do not rely on anything in this article in making any decision in a particular cease and desist situation. Properly handling legal matters involves more than could ever be addressed in a general informational article on the internet. If you need help with a specific situation, you should educate yourself, hire an experienced lawyer, and make sure you handle the situation carefully.
How Cease and Desist Matters Arise
Cease and desist matters are not limited to non-competition agreements. While noncompetes can be contentious issues in some cases - especially in Oregon where these agreements are only partially regulated (See, e.g., ORS 653.295) - there are a host of other competition-related concerns that parties must understand.
In the employment context, employers utilize cease and desist letters with current and former employees who pose meaningful threats to the employer's proprietary interests. Actual or perceived threats come in many forms, including but not limited to: (1) confidential information disclosures, (2) trade secret misappropriations, (3) breaches of the duties of loyalty, good faith, and fair dealing, (4) customer and employee solicitations, (5) tortious interference with business operations, and (6) contractually-restricted competitive activities. The scope and nature of competitive concerns appear to be on the rise due to the increased presence of technologies that make information more portable, transferable, and interconnected.
Whether an actual breach has occurred does not always primarily determine whether an employer will send a cease and desist letter. Some employers operate on the premise that "where there is smoke, there could be fire" and are motivated to act as soon as there is any reason to believe that competition or confidentiality-related rights might be threatened. The threshold can be low. For example, employers often learn when a former employee accepts employment with a competing company, vendor, or customer via shared contacts, social media, etc. This kind of information has prompted many disputes. Likewise, employers are savvy about evaluating email, servers, cloud drives, and other sources of forensic information that can reveal competitive breaches. Many employers will act as soon as they have reason to believe an employee's actions may threaten the bottom line.
The Cease and Desist Process
Whether and when an employer involves legal counsel in a cease and desist matter varies based on the situation. Many large companies employ in-house attorneys and these attorneys are frequently involved in an employer's initial action. In-house attorneys work with business teams to gather information and formulate appropriate responses. Smaller companies may rely on human resources personnel, managers, or company owners to identify and notify employees of potential competitive concerns. In cases involving potentially serious breaches or cases that otherwise require immediate action, companies may engage outside counsel to ensure required litigation or other legal proceedings are carried out swiftly and forcefully.
Consider the contrast between these common approaches:
- An employer has strong evidence of a potential breach and wants to send a cease and desist letter to: (a) immediately stop the offending conduct, (b) mitigate the possibility of further harm, and (c) put an employee on notice of legal action.
- An employer may wish to send a letter to a former employee to remind the employee of the importance of adhering to contractual and statutory obligations.
Initial Employee Reaction to Cease and Desist Letters
Substantively responding to a cease and desist letter requires several steps, all of which vary widely on a case-by-case basis. First, employees are almost always required to preserve all evidence relevant to the situation. The complexity of this step varies dramatically on a case-by-case basis and the substantive topic of evidence preservation is beyond the scope of this article. However, employees should understand that destruction (manual or automatic) or failure to preserve evidence can wreak havoc on a cease and desist matter. The mere act of accessing files can alter them and therefore extreme caution is advised. Regardless of how favorable or unfavorable evidence might be, failure to appropriately preserve and handle it can create optics that taint a case.
To the extent multiple parties are involved a cease and desist matter, all parties should understand the nuances of inter-party communication. Employees facing competitive disputes will often desire to communicate with their allies (i.e., new employers, new business partners, etc.) but need to be careful about doing so.
One relevant legal issue relates to the privileged nature of communications among the parties and their counsel. See, e.g., Port of Portland v. Oregon Ctr. for Envtl. Health, 238 Or App 404, 406 (2010), rev den, 350 Or 230 (2011). In some cases, communications made among parties "in a matter of common interest" may be exempt from disclosure to other parties. Employees face a delicate situation when it comes to balancing their individual interests with the interests of new or prospective employers. Common and divergent interests are common. The matters of who holds a privilege and how it can be asserted depend on the details of each case. Savvy parties will consider the terms and details of an appropriate common interest agreement.
Another issue that often needs to be pinned down at an early juncture is the scope, if any, of indemnification, fee and cost sharing, or other risk-sharing allocations related to a response or defense. Employees are rarely in a position to pay for substantial legal fees. While new and prospective employers are usually loathe to involve themselves in these disputes, there are some cases that require contested proceedings. In these cases, employees need to carefully determine the scope of each party's involvement and responsibilities in a dispute. To the extent any insurance is in play, that issue also needs to be resolved as early as possible.
The linchpin of most cease and desist matters is the extent to which an employee will ultimately stand down from professional activities. Employees must keep an open but extremely cautious eye on their options. Employees in some cases will be prohibited outright, by law or other practical reasons, from continuing in their desired line of work. Employees who recognize and accept this reality early on will be in a better position to reframe career options and engineer a more favorable outcome. In other cases, employees have strong defenses to competition-related claims and should understand the mechanics and application of those defenses.
In reality, an employee's prognosis is usually nuanced, not black and white. For example, perhaps an employee's legal obligations only restrict her or him from using or divulging trade secrets or proprietary information or solicitating employees or customers of the former employer. While at first this may seem prohibitive, a closer look at available options may reveal that the employee can modify her or his work in way that does not require a prolonged involuntary vacation. In other words, sometimes an employee will be able to engage in activities on the condition that she or he carefully adheres to contractual and common law duties.
Substantively Responding to a Cease and Desist Letter
In my experience, parties to cease and desist matters can usually agree on a number of issues despite disagreement on others. Identifying potential areas of agreement is an important step. For example, many former employees are primarily concerned with non-competition restrictions but have little or no interest in using or divulging their former employer's trade secrets. Likewise, many employees do not want to solicit or intentionally conduct business with a former employer's customers or clients. As a recent Oregon Court of Appeals opinion shows, even overly broad competitive restrictions may contain enforceable components. Oregon Psychiatric Partners, LLP v. Henry, 293 Or App 471, 472 (2018). Oregon Psychiatric Partners showcases the importance of understanding the multiple layers involved in most competitive disputes and reaching agreements wherever possible. See also, Naegeli Reporting Corporation v. Peterson, 3:11-cv-01138-HA (D. Or. Dec. 5, 2011)
Another important question when responding to a cease and desist letter is whether and, if so, to what extent an employee should return documents, files, property, or other information in response to a cease and desist letter. This subject is impossible to generalize due to the highly fact-specific manner in which most businesses operate, the types of information that end up in employees' hands, and the underlying details of cease and desist disputes. Some employers issue broad and onerous information return requests alongside cease and desist demands. This may be reasonable in some cases. However, these demands are less reasonable in other cases - especially those where an employer took few precautionary measures to protect or secure the return of information before a competitive dispute arose.
Regardless of an employer's approach, employees should be extremely careful about identifying, safeguarding, preserving, and returning potentially confidential information. Such information increasingly, insidiously, and often inadvertently creeps into employees' possession - usually through digital means. Employees should consider questions including the following: (1) have you ever talked to work-related contacts on your personal phone? (2) have you ever sent or received work-related text messages? (3) have you ever saved a work contact's phone number on your phone? (4) are you connected with work contacts on social media (e.g., LinkedIn, Facebook, Twitter, Instagram, etc.) (5) have you ever emailed yourself work-related information or saved such information on a cloud storage service? (6) do you use mobile or cloud-based apps for work? For some people, the answer to one or more of these questions will be yes. In this case, it is extremely important to be careful about understanding, safeguarding, and preventing the deletion of potentially relevant information. In some cases, passage of time or the mere continued use of a device can result in loss of relevant information.
Last but not least, an employee's response to a cease and desist letter needs to be practical. Unfortunately, for a variety of reasons, some employers refuse to negotiate or otherwise concede any rights when it comes to competitive matters. Before getting too emotionally or financially invested in any particular resolution to a cease and desist letter, an employee must fully understand their legal and practical reality. While there are certainly times to fight and enforce rights, there are plenty of other times where there is a path of less resistance.
Litigation Basics in Cease and Desist Matters
Cease and desist related cases often revolve around a few main issues. The primary substantive issue in competitive lawsuits is the extent to which an employee will be restrained from engaging in competitive activities. This issue typically manifests in temporary restraining order and preliminary injunction proceedings. Restraining order and preliminary injunction matters may proceed in state or federal court, depending on the dispute. Some cases will proceed in private arbitration pursuant to the parties' agreement. Determining the applicable law and venue for a cease and desist dispute involves an analysis of the parties' contract, other relevant facts, and the law. See, e.g., Johnson v. Copiers NW, Inc., 16-CV-1556-SI, 2017 WL 1968605, at *1 (D. Or. 2017) (dismissing a competition-related lawsuit brought in Oregon federal court in conflict with Washington forum selection clause in parties' contract).
Costs and legal fees are an important concern in litigation. Competitive litigation tends to be expensive. Before considering the procedural and substantive mechanics of injunctions or damage claims, parties must consider each party's practical ability to finance a fight. Costs can determine (1) whether to fight, (2) how to fight, and (3) what type of attorney to work with. Acknowledging this truth early in the process encourages everyone to resolve disputes together or, alternatively, to commit the proper resources to an externally-imposed resolution.
In restraining order and injunction proceedings, an employer usually files a lawsuit and initial motions seeking a court order stopping an employee from working or engaging in certain activities. Unlike many other civil lawsuits, which take months or years to wind through the court system, injunctions move swiftly. Parties to these cases should expect expedited discovery schedules and evidentiary hearings (de facto trial) within days or weeks of the time a lawsuit is commenced. The outcome of the preliminary injunction foreshadows the final outcome in many cases. Therefore, competitive cases often rise or fall on these preliminary motions. Even when employers prevail, courts may require a substantial bond as security for enjoining an employee's activities. See, e.g., Brinton Bus. Ventures, Inc. v. Searle, 248 F Supp 3d 1029, 1031 (D. Or. 2017)(requiring $100,000 bond from employer seeking to preliminarily restrain employee's activities).
Employees sometimes also wish to bring their own actions to invalidate or prevent employers from enforcing competitive restrictions. The availability of initial injunctive relief for employees will depend heavily on the facts and will hinge on whether an employee can show immediate and irreparable harm coupled with a likelihood of prevailing on the merits of the underlying dispute. Regardless of whether injunctive relief is available, employees can seek declaratory relief from a court concerning the validity and/or scope of competitive restrictions, though not usually on an expedited basis. See, e.g., Johnson v. Copiers NW, Inc., supra.
After preliminary injunctive proceedings, competitive disputes proceed in the same manner as any other civil lawsuit. This process involves discovery - document requests, depositions, and written questions - and motion work to narrow the scope of issues for the ultimate fact finder. The process varies in length, with 12-24 months being a reasonable time frame for initial trial court proceedings in most cases. The goal of competition-related litigation is to adjudicate the parties' rights and responsibilities and, where applicable, to award money damages for harm caused by unlawful activities. Competitive cases often involve attorney fee claims arising under contract. Where such clauses are in play, the losing party may be required to pay the prevailing party's legal fees.
The outcome of any competition-related litigation in a trial court may be subject to appeals. These appeals can take years and require substantial efforts to review, research, brief, and argue. This article will not discuss the appeals process other than identifying it as a source of substantial expense and delay.