You just heard the news—a trusted employee is quietly starting a competing business.
The next 48 hours are critical.
Your mind races with questions: Are they using my client list? Is my confidential information at risk? It’s a moment that tests any business leader.
The worst thing you can do is panic.
This situation requires a swift, strategic, and business-first response, not an emotional one.
This article provides the five step process to take control of the situation and protect your business.
The first step in protecting your business is to stop any potential loss of clients, data, and intellectual property.
Before you do anything else, you must contain the threat.
With the immediate threat contained, your next move is a rapid damage assessment. You need to gather the facts to understand your position.
Pull the employee’s file and locate all signed agreements. Find any employment contracts, non-compete agreements, non-solicitation agreements, confidentiality agreements, or anything else that the employee signed. These documents will serve as a starting point for determining what options you will have moving forward.
You will also want to review all company owned computers, cell phones, and other technology the employee used to determine if any confidential business information has been taken.
After the audit is complete, the next step is to contact your business lawyer and get an opinion about what options you have to protect the business.
The law surrounding employee agreements in Illinois is complex, and has changed substantially in recent years, so getting up to date advice is a crucial next step.
Some potential claims your counsel will evaluate include:
If the employee signed a restrictive covenant, this is your most direct path.
However, it is critical to understand that these agreements can be difficult to enforce in Illinois.
The Illinois Freedom to Work Act imposes several strict requirements.
When deciding whether a non-compete or non-solicit is enforceable, courts will consider:
Separate from any contract, Illinois law provides protection for a company's trade secrets via the Illinois Trade Secrets Act.
The Act defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Essentially, it is confidential information about your business that has economic value tied to it being kept confidential to you.
However, keep in mind that you must have made reasonable efforts to keep the information secret.
In order to bring a claim for misappropriation of a trade secret, you will need to show that (1) a trade secret existed, (2) the secret was improperly acquired, disclosed, or used, and (3) that you suffered damages.
Your attorney will use the evidence from your internal audit to give you advice about whether you have a viable claim, and the chances of success.
Just because you can pursue a legal claim does not mean you should. The smart response is proportional to the business threat.
The first step is to analyze the impact that this has on the business. Quantify the risk. Here are some initial questions you should consider:
Legal action always comes with costs that are obvious, and some that are less obvious. Whether to pursue legal action should be viewed through a business lens to ensure that the response is what is best for the business.
After you have thought through the business impact, talk with your attorney about the pros and cons of the responsive options.
Once the immediate crisis is under control, it is time to develop a plan to make it less likely to happen again. You can use this unfortunate event to strengthen your competitive position. Here are a few things you may want to consider moving forward:
Knowing what to do when an employee becomes a competitor is the first step in protecting your competitive position.
By following a clear, strategic process, you can move from a position of shock and vulnerability to one of control. Acting quickly to contain the threat, gathering the facts, and engaging expert counsel allows you to protect the business you've worked so hard to build.
If you are facing a critical situation like this and need to deploy a rapid response, or if you want to proactively protect your competitive position with a strategic legal framework, click the button below to schedule a consultation with our team.
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Disclaimer: The information contained in this article has been prepared by Small Business Legal Solutions LLC for general informational purposes only. Nothing in this article is intended to constitute legal advice on any subject matter. The materials in this article are not intended to and do not create an attorney-client relationship. Do not act or refrain to act based on any information contained in this article without first personally consulting with an attorney. Every circumstance is different and must be judged on its own merits.