Resignation and Competition with Former Employer

In a recent matter involving the sale of a business to a large public company, the vendor was required to sign an agreement with typical confidentiality, non-competition and non-solicitation clauses.

 

The acquisition was not a business success. The purchaser succeeded in its goal of acquiring the clients, but managed the new business in a way that financial targets were not met, resulting in a significant downward adjustment in the purchase price. The vendor was unhappy and negotiated an agreement whereby he resigned on the basis of certain fixed amounts payable over time.

 

The public corporation was unhappy with what it considered to be subsequent competitive activity on the part of the vendor/employee who resigned, and retained Ron to advise on the strategy to resolve the matter, on a basis that maximized the scope of permissible business activity on his part as well as the collection of money owed to him. Issues included the past and present conduct of the corporation that gave rise to the dispute, analysis and characterization of the impugned conduct of the now departed employee who was owed money by the corporation, the construction of the resignation agreement with its provisions for confidentiality, non-solicitation and non-competition for a limited period of time, the range of remedies (on both sides) from damages to injunctive relief, and the scope and effect of a release where there had been an arguable failure of consideration.

 

As in most such matters, successful resolution depended on the appropriate combination of the threat of a lawsuit, the issues of cost, delay and adverse publicity, all considered in light of the overall legal merits and equities that would be brought to bear by a judge. Successful resolution was achieved, both parties recognizing that litigation in many commercial disputes can be a scorched earth policy.