Restrictive Covenants

Long Delay Prosecuting Restrictive Covenant Claims May Warrant Dismissal

The New Jersey Superior Court, Appellate Division affirmed the dismissal of a plaintiff corporation's suit alleging misappropriation of trade secrets and confidential information against a former employee and her new employer because the plaintiff waited too long to file suit.  (Fox v. Millman, (No. A-5905-07T3 7/15/2010)) Although the plaintiff knew its former employee began working for a new employer shortly after her discharge and immediately began soliciting plaintiff's customers, the former employer waited approximately four (4) years to sue the former employee and her new employer, but by that time, the former employee had generated $5.2 million in sales from the plaintiff's customers.

At the trial, the jury unanimously found that the plaintiff "unreasonably delayed in asserting its claims" and that the former employee's new employer was prejudiced by the delay.  The trial judge held that the new employer was deprived of the opportunity to assess the plaintiff's claim prior to engaging in a four-year relationship with the former employee.  The Appellate Division affirmed the jury's finding, holding that the plaintiff had "inexplicably delayed" bringing the action against both the former employee and her new employer.

Practice Pointer:  Employers should act promptly after learning that a former employee misappropriated trade secrets or confidential information, or violated a restrictive covenant/non-competition agreement.  Immediate measures include sending a cease and desist letter to the former employee and his/her new employer, seeking a court injunction, and filing a suit for damages.  Employers should be mindful that these suits can be costly with uncertain outcomes.      

For additional information on this topic, please contact Douglas S. Zucker at DSZ@zuckerhatfield.com or Kathryn V. Hatfield at KVH@zuckerhatfield.com.

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