The Practical Lawyer (No. 3): Plan Your Damages Case Early and Often

Competition disputes get very heated very early. This paradigm normally means decisions are made without much time to think of the consequences.

As a result, it is quite common for cases to launch without the plaintiff ever having thought how it is going to recover for its alleged injury. Most business competition disputes are not about recovering a liquidated debt which is easily calculable. Rather, they are about stopping conduct deemed threatening and, if that conduct is not stopped, recovering some lost business damages.

By definition, those are difficult to calculate and amenable to wild speculation. For any attorney representing a plaintiff in non-compete litigation, it is essential to figure out what remedy his or her client is primarily seeking. If it is damages, then special care must be taken to figure out how those damages will be proven.

A couple of things to keep in mind.

(1) Projecting lost profits requires an assessment of the cost the firm would have to expend in order to obtain that profit. This means that a plaintiff must consider the incremental cost (commissions and direct selling expense) that it would incur to produce new business.

(2) Some amount of guesswork is permitted, as long as it has a rational basis. Rank speculation, such as wildly off-the-mark growth rates, will doom an entire damages presentation.

(3) Expert witnesses are likely necessary, particularly if a plaintiff seeks future lost profits. It is usually beyond the scope of fact witness testimony to establish a growth pattern in client revenue, derive an appropriate terminal period, and introduce evidence of an acceptable discount rate. Incompetent evidence on any lost profits variable may ruin any chance of recovery.

(4) Finding an expert who knows the industry is essential.

(5) Clients should be prepared to disclose more information than they're comfortable with. To recover for lost profits means a client will need to allow an expert unfettered access to sensitive business records, and the defense will generally be entitled to see whatever business documents the plaintiff's expert reviews.

(6) Researching the jurisdiction's lost profits case law is essential. Not every jurisdiction has the same types of rules. It also may be helpful to review trends and patterns in cases that go bad and those that turn out well for the plaintiff. An attorney who spends a little time up front sifting through damages opinions may find expert witnesses whose testimony has stood up to appellate review and whose theories have been accepted by judges and juries. There is no substitute for preparation.

The Practical Lawyer (No. 2): Confirming The Reason for Termination

December and January always result in a rush of severance work for me, both in terms of drafting contracts for my employer clients and reviewing them for employees.

This week's "Practical Lawyer" is no more than a simple drafting tip. On the employee side, it is important to try and obtain a representation in the severance contract that the employee was terminated without cause. (If he or she were terminated for cause, it is highly unlikely that a severance agreement is even in play.) What is the reason for including this provision? There really are two.

First, it means an employer won't be able to contest unemployment.

Second, it can help the employee find a new job without worrying about a non-compete clause. Many employment contracts provide that non-competes are enforceable only if an employee quits or is fired for cause. An acknowledgment by the employer that the employment was terminated without cause is an admission and would not allow for enforcement.

In some states (New York and Montana), termination without cause means an employer cannot enforce the non-compete agreement regardless of the triggering language in the contract. In most states, it is a factor a court will weigh when considering whether enforcement is reasonable.

Even reaffirmation of a non-compete within a severance contract may not allow an employer to enforce. For starters, courts recognize the difficult economic choice an employee is in when presented a severance. Further, the consideration for the payment is not necessarily the reaffirmed non-compete, but rather the release the employer obtains in the severance contract. Every employee situation is different in terms of assessing what consideration the employer truly received for the severance payment. Finally, the amount of the severance may have an impact. Reaffirming a covenant for two weeks severance pay won't impress a court if it is asked to enforce a non-compete. A year's pay may be a different story.

Employees, therefore, should always request that an employer agree in a severance document that termination was "without cause." In most circumstances, the employer should have no issue with this and should consent to it.

The Practical Lawyer (No. 1): A Client Gives Me a Drafting Tip

One of the most important pieces of advice I can give any lawyer is very simple (and maybe very obvious): listen to your client.

Many of my clients are small business owners. As corporate counsel, it is critical for me to understand the dynamics that affect my clients' business operations. This week, when working on a draft non-compete agreement, a client caught something that was missing from the form document off of which I start the drafting process.

A provision that deals with cloud computing.

It is standard procedure in my non-compete agreements to have some provision calling for the return of business materials upon termination of employment. Those clauses also call for an inspection opportunity, such that an employer can verify company data isn't maintained on personal thumb-drives, tablets, or smart phones after termination.

However, my form agreement did not mention cloud computing or cloud storage. By now, most attorneys are aware that documents and data can be stored in the cloud. Cloud storage basically means that information is stored online in a pool hosted by a third-party. It provides employees the opportunity, for instance, to access information following departure even if their personal laptop or tablet device appears "clean." It is similar (and far more advanced) than the situation involving employees who have old company e-mails maintained in a web-based e-mail system, which provides ease of access.

Employers should consider restricting the ability of employees to store documents in the cloud. In my opinion, the availability of easy-to-use cloud storage platforms (such as iCloud) creates a potential problem that employment agreements may not address.