Typically, a business co-owner’s exit from the organization is the end of disputes related to company operations. Partners establish very clear standards in a buyout scenario, often in accordance with the initial partnership agreement.
Frequently, the contracts executed as part of one owner’s exit from the company include several restrictive covenants. The exiting business partner or executive is often subject to non-compete agreements that prevent them from starting a company that directly competes with the organization. They may be bound by a non-disclosure agreement that prevents them from sharing trade secrets or using them when starting a new company. They may also be subject to a non-solicitation agreement that prevents them from trying to hire employees or do business with company clients.
If a former owner or executive violates the terms of their severance agreement, the matter may require business litigation. The courts offer two useful remedies in such scenarios.
The courts can issue an injunction
An injunction can be helpful in scenarios where a former executive or business partner leverages their inside knowledge for personal financial gain. An injunction can effectively prevent continued solicitation of workers, attempts to do business with clients, disclosure of private information or other forms of unfair competition.
A judge can award damages
A former business partner poaching clients for skilled employees from a business can do real harm to the organization. Their behavior could result in the company losing sales or client contracts.
Provided that there is proof of the inappropriate competition and financial documents affirming the economic impact of that inappropriate competition, the business taking legal action can request damages as a remedy from the courts.
A judge theoretically has the authority to order a former partner or owner to reimburse the organization for losses their conduct generated. A judge can also enforce any penalty clauses included in the initial agreement, which can add to the amount of money recovered by the plaintiff organization.
Establishing appropriate contractual protections when arranging for a business partner to exit an organization is important. Timely business litigation initiated after the discovery of contractual violations is also important. Organizations that proactively enforce their agreements can potentially mitigate the harm caused when someone with inside knowledge uses that information to harm or unfairly compete against the company.
