How to Avoid Getting Sued After Quitting Your Job

A man sits in front of his laptop with his hand over his eyes, looking distressed.

(Image credit: Getty Images)

Soliciting the customers of your former employer is just one of the things that could land you in hot water. An attorney outlines other scenarios and what not to do.

What to Do With Money in a Former Employer’s 401(k)

“Wanting to learn the ropes from our employer and go out on our own is something that many employees consider,” observes Southern California attorney Glenn Dickinson. “If you go about it the right way,” he adds, “a new, exciting and successful chapter can open in your life. That is the beauty of our American system of competition. But you’ve got to be aware of what not to do.”

And that’s our focus in today’s story — leaving an employer, going out on your own and the consequences of doing it all wrong.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

I asked Dickinson to list and explain the things that can result in a lawsuit. So, if you (or someone you know) are considering leaving your current employer and setting up your own shop, his advice will reduce the chances of winding up on the wrong side of a lawsuit. Here’s what NOT to do:

1. Be sneaky! Before informing your employer that you are leaving, tell your customers and ask them to give you their next order because, “I’ll give you a much better price.”

Employees owe a duty of loyalty to their employer, so if you are sneaky and customers follow you, now you’ve got a legal problem, as this is not only a breach of that duty, but it can be unlawful under other laws.

However, you can avoid being sneaky by respecting the correct sequence of events with who you tell, beginning with your employer. Then, you can tell customers and fellow employees. In your business life, you’ve got to start with the employer.

2. Aggressively target customers of your former employer, solicit their business and think of them as “your” customers rather than those of your former employer.

This is false reasoning, as the customer isn’t yours. Rather, they have a legal relationship with your former employer.

The rule in many states is that you are free to send an announcement about your new employment, but you cannot send a solicitation. An “announcement” is bare bones: As of (date), this is my new contact information. A “solicitation” is anything that invites placing an order.

5 Steps to Turn Your Side Hustle into a Business

If your new employer has a pre-existing mailing list that is independent of any information they acquired from you, they can send out a solicitation to anyone in their database, as well as an announcement that you are now working for them. If the customer list happens to include customers of your former employer, that’s OK — as long as those contacts didn’t come from you.

3. Take stuff with you when you leave.

You’ll want to “empty your pockets” of everything you obtained from your former employer, whether it is physical paper, e-mails, contacts on your phone or files or folders on your computer. You need to sterilize yourself of any information you have received.

You must purge customer information from your personal phone. You must be sure that you do not walk away with any information that belongs to the former employer.

4. Look suspicious, not transparent.

One of the great drivers of litigation is the unknown. If your former employer suspects that you are up to no good — doing unlawful things — and they can’t find out what you are really doing, then they are more likely to file a lawsuit because they are suspicious.

So, be transparent: If you get a demand letter or a cease-and-desist letter, it gives you the opportunity to respond in a professional, thorough and transparent way. This is where hiring a lawyer can be extremely important.

When you get one of these “nastygrams” from a former employer and you hire a lawyer to respond, it sends two very clear messages: First, “I am taking this seriously.” Second, it tells them you have informed yourself on the requirements of the law.

This is a specialty area of the law with its own unique features and particular rules. So a general business attorney might not be the best person to speak to. You would need a litigator experienced in trade secrets and unfair competition.

A response letter from a lawyer who knows what they are talking about says that the former employee is getting good advice.

An Ounce of Prevention Goes a Long Way

Dickinson concluded our interview by recommending something that can be tremendously valuable if problems arise, and that is, “Before leaving, meet with a lawyer familiar with these areas of the law and walk through the do’s and don’ts. It’s not guaranteed to keep you out of a lawsuit, but it makes one more defensible, as you can say, ‘I sought legal counsel. I tried to do it the right way.’ In that situation, the lawsuits tend to end quickly on reasonable terms.”

Need to Hire a Lawyer? Why Local is Best.

After 30 years as a litigator, Dickinson’s focus “is to keep people out of court, and I often tell clients, ‘The secret of happiness is not winning lawsuits! The secret of happiness is staying out of lawsuits!’”

Dennis Beaver Practices law in Bakersfield and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."