As in-house counsel or the human resources director, you have probably received a frantic phone call from the business folks telling you that a former employee disclosed trade secrets or violated a restrictive covenant and demanding that immediate action be taken. After gathering the facts, the next step is usually to send a cease and desist letter to the former employee, and oftentimes to the former employee’s new employer. Such letters generally set forth the applicable confidentiality or non-compete restrictions as well as the former employee’s offending conduct. As my colleague Kara Maciel recently noted in her blog posting, Cease and Desist Letters Enjoy An Absolute Privilege From Libel Claims, these letters, if properly written, may be protected from libel claims by the judicial proceedings privilege. A recent case, however, stands as a reminder that there may still be liability for writing an “overly zealous” - - and potentially inaccurate - - cease and desist letter. As this case out of the Southern District of New York demonstrates, it is critical to do your homework before sending (or having outside counsel send) such a letter, to the new employer.
In Gentile v. Olan, the plaintiff had worked as a salesperson at Sales Crest Linen for approximately six years. During her employment, the plaintiff allegedly signed two employment agreements which contained promises to abide by post-employment non-solicitation provisions. Following her employment at Sales Crest Linen, the plaintiff went to work at White Plains Linen. Sometime after the plaintiff was hired by White Plains Linen, the defendant, the vice president of the successor of Sales Crest Linen, was allegedly told by a customer that the plaintiff had notified this customer that “she was working for White Plains.” Based on this information from the customer, at the direction of defendant, legal counsel wrote to the plaintiff stating that she had violated her employment agreement. Defendant’s counsel further wrote to the plaintiff’s new employer threatening “appropriate action” should the plaintiff be permitted to “continue to contact and solicit customers of Sales Crest Linen.” In response to receiving the letter from counsel, the plaintiff’s new employer terminated her employment.
The plaintiff brought a lawsuit alleging that defendant engaged in fraud and tortious interference with contract. In New York, the elements of a claim of tortious interference with contractual relations are: (1) a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional inducement of the third party to breach; and (4) damages to the plaintiff resulting therefrom. As the Gentile Court recognized, to establish a claim for tortious interference with at-will employment, there is a heightened standard requiring a demonstration that the defendant acted with “malice or employed wrongful means.” In considering the plaintiff’s claim in Gentile, Judge Baer applied the heightened standard since the plaintiff was an employee at-will.
In deciding whether to dismiss the tortious interference with contract claim on summary judgment, the Court considered the plaintiff’s arguments that she did not sign the employment agreements at issue (and her signature was allegedly forged) and that she did not solicit customers (she may have merely notified them), thereby making the cease and desist letter to her employer unwarranted. In light of the fact that plaintiff may not have been prohibited from solicitation if she had not signed the employment agreements and that she may have not actually engaged in solicitation, the Court found that the cease and desist letter to the new employer could have been malicious. The Plaintiff was permitted to proceed with her tortious interference claim.
While cease and desist letters are useful tools in protecting company assets and information, employers should consider this case and its message before simply sending them. It is important that cease and desist letters are truthful and made in good faith. Accordingly, prior to sending such letters, employers should:
• Review the former employee’s obligations;
• Fully gather the relevant facts concerning the employee’s alleged wrongful conduct;
• Accurately describe the former employee’s wrongdoing; and
• Consider the implications of sending the letter to the new employer.