Non-compete disputes often follow a similar pattern. And part of that pattern involves the dreaded "cease-and-desist" letter.
These letters are precursors to litigation, and they can be either effective or damaging, depending on the context in which they're sent.
From my perspective, cease-and-desist letters serve one of four general functions:
1. They can start a dialogue between the parties to resolve a burgeoning dispute before it hits the courthouse steps.
2. They place a new employer on notice of the departing employee's restrictions, which helps establish the "knowledge" element of a tortious interference with contract claim.
3. They serve as a proxy to a lawsuit, as they often slow down an employee who may be thinking of competing in a manner that violates a contractual obligation.
4. They remind the employee of the extent of his or her obligations, thus removing a potential "I didn't know I signed it" argument in court (which isn't very effective anyway).
Cease-and-desist letters can also backfire. They can cost an employer a forum fight, if the letter itself leads to an employee filing a declaratory judgment claim. And, if they are loaded with facts that haven't been thoroughly investigated and sent to a new employer, they could form the basis for a tortious interference claim.
But, not to worry...rarely do they form the basis for defamation claims. An employee generally will not be able to claim libel or defamation against a former employer or its counsel if they send a cease-and-desist letter containing faulty or inadequate representations of fact (which are exceedingly common in these types of disputes).
For starters, the litigation privilege protects statements made in the course of litigation and those reasonably leading up to litigation. A cease-and-desist letter will be the type of communication covered by the litigation privilege. Also, a properly drafted non-compete will contain a provision that allows an employer to send a copy of the agreement to potential new employers. If it does, the defense of consent will bar a defamation claim arising out of a cease-and-desist letter as long as the distribution of the letter is limited to those with a legitimate need to see it.