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Can a Small Business Sue a Former Employee?

Posted by Jonathan Krems | Jun 13, 2024 | 0 Comments

In today's Freedom Friday blog and email newsletter, I'm going to talk about a topic that I am starting to get asked about more frequently than not, and that is if a small business can sue a former employee, or in the case of a smaller small business, a former independent contractor.  The answer is yes, there are several reasons why a small business can sue a former employee or independent contractor.  In today's Freedom Friday blog, I am answering the question, “Can a small business sue a former employee (or independent contractor)?”

The short answer is yes, there are several reasons why a small business can sue a former employee or independent contractor.  First off, you need to have terminated that employee or independent contractor before you consider filing a lawsuit.  Maybe the former employee or independent contractor voluntarily left your company, or they were fired for disciplinary or other reasons.  Nevertheless, you need to document the fact that they were once employed or under contract, and they're no longer with your company for whatever reason.  Before you hire an attorney and sue the former employee or independent contractor, you need to address the issue with the former employee or independent contractor.  Send them a formal letter asking them to resolve whatever the issue is, if it can be resolved at all.  You might also hire an attorney to send them the same type of letter.  Sometimes these types of issues can be resolved by a demand letter, but if the former employee or independent contractor refuses to resolve the matter short of litigation, or even make their own demand for his or her own grievances, then yes, there are certain types of claims you can sue a former employee or independent contractor.  In today's Freedom Friday blog and email newsletter, I want to share six (6) common claims by small businesses against former employees or former independent contractors:

1.  Non-Solicitation Agreements

The first common claim by a small business against a former employee or independent contractor is a violation of a non-solicitation agreement.  Many times, a small business will require an employee or independent contractor to sign an employment agreement or an independent contractor agreement, and that agreement will include a clause for non-solicitation.  Non-solicitation agreements prohibit employees (or independent contractors) from soliciting customers from their current employer (or contractor) in order to obtain a contract with those customers as an independent contractor (or on behalf of a new employer) after they leave the original company.  Usually, this type of agreement will need to have reasonable time limits and conditions to be enforced.

2.  Defamation

The second common claim by a small business against a former employee or independent contractor is defamation.  Defamation can also be prohibited by the former employee or independent contractor's agreement with the employer or business, but it doesn't have to be.  Defamation are statements known to be false and which harm the employer's or the business's reputation, or somehow interfere with their business relationships.  Monetary loss is not required for a not required for a defamation claim, and the employer or company can sue for injunctive relief (to get the behavior to stop), and for damages.

3.  Breach of Fiduciary Duty

The third common claim by a small business against a former employee or independent contractor is breach of fiduciary duty.  Again, this can be prohibited by the employee or independent contractor's agreement with the former employee or independent contractor's agreement, but it doesn't have to be, either.  Many times, an employee (and sometimes an independent contractor) owes a fiduciary duty to the employer which also includes a duty of loyalty.  For example, holding on to prospective leads and bringing those over to a new employer or their own business venture, instead of presenting them to their current employer is called “warehousing” and may be a breach of fiduciary duty.

4.  Negligence

The fourth common claim by a small business against a former employee or independent contractor is negligence.  Generally, employees (and sometimes independent contractors) are not held liable for carelessness or negligence while they are performing their duties.  However, if the employee or independent contractor acts unreasonably and causes damage or injury to company property or personnel, the employer or company may be able to sue for negligence, and this includes situations when the former employee or independent contractor acted with “gross negligence”.

5.  Theft (also called Conversion)

The fifth common claim by a small business against a former employee or independent contractor is theft and/or conversion.  If a former employee or independent contractor stole (or fails to return) tangible equipment, such as a computer, vehicle, or other equipment, an employer or business can legally sue their former employee or independent contractor for theft and/or conversion, and also breach of contract if this is addressed in their employment or independent contractor agreement.  The same is true if the former employee or independent contractor holds on to property after they are terminated or resign.  Even if this is done for retaliation because of lack of severance pay or compensation, these actions are still unlawful theft and/or conversion.  Also, former employees and independent contractors can be sued for theft of trade secrets, especially if such is prohibited in their agreement.

6.  Breach of Contract

The sixth common claim by a small business against a former employee or independent contractor is breach of contract.  If your former employee or independent contractor signed an employment agreement, independent contractor agreement, or even in some instances a lease agreement, then any of the above violations could be a breach of contract, especially if the offending behavior was specifically addressed or prohibited in their agreement.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/

About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...

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