What Can I Do if a Former Employee Threatens to Ruin My Business?

Summarise with: ChatGPT Perplexity Microsoft Copilot

---

Table of Contents

• Threats to Ruin Your Business Reputation
• Threats to Disclose or Misuse Confidential Information
• Competition Threats
• Key Takeaways
• Frequently Asked Questions

Employee-employer relationships may deteriorate if you terminate an employee’s service contract. As a consequence, your former employee may make certain threats that will negatively affect your business. Practically, the law does not typically give you much recourse for mere threats. However, you can take certain steps if they act on their threats. Specifically, it will outline:

• how to deal with threats to ruin your business reputation; 
• threats to disclose confidential information; and 
• threats to compete with your business. 

Threats to Ruin Your Business Reputation

An ex-employee may make threats to you that they will make damaging statements about your business. For example, they may threaten to post a negative review about your business. This can cause you to be on bad terms with your customers and lower employee morale. If the employee actually goes through and makes those statements to the public, you may be able to claim injurious falsehood.

Injurious falsehood is a claim that is sometimes mentioned alongside defamation. However, the claim is very different and harder to prove. Injurious falsehood claims relate to statements that cause damage to the reputation or commercial interests of a company.

There are four key elements that you will have to prove. These are that:

1. there is a false statement about your business or the goods/services you provide; 
2. the statement was published to a third person;
3. there is an element of malice by the person publishing the statement (‘malice’ in this context means an intention to inflict damage on your business); and
4. there has been actual damage to your business as a direct result of the statement.

If a former employee threatens to bad-mouth your business to current and existing clients of your business, you will need to prove:

1. the ‘bad-mouthing’ was done using false statements;
2. they made the statements to the current or existing clients;
3. they intend to inflict damage on your business; and
4. your business suffered an actual loss as a result. For example, this can be proven if your clients cancel their relationship with your business due to the statements.

Threats to Disclose or Misuse Confidential Information

A former employee may have had access to confidential information such as templates, client information, or source code. The age of cloud storage and online communication makes it easier than ever for employees to take company information. If you notice that your information has become compromised, you can take the following steps to protect your information from a disgruntled employee.

Check the Employment Agreement in Relation to Confidentiality

Your employment agreements should contain a clause about the use of confidential information during and after employment. Critically, they should include::

• what the business classifies as ‘confidential information’;
• what type of information the employee will interact with during the course of their employment; and
• the process and obligations for the return or destruction of confidential information for an ex-employee.

You should also check the employment agreement for clauses related to intellectual property. An employee must be aware of whether particular works they create in the course of their employment remain the employer’s property.

If the employment agreement does not contain such a clause, there may still be some overriding or implied duties owed by the employee, including a duty of good faith and fidelity. You can generally rely on the law to enforce implied duties. For this reason, and to ensure you can continue to protect your business’s confidential information once an employee has resigned or been terminated, your employment agreements should set clear expectations and obligations..

Consider Enforcement Options

Your first steps should include sending a letter to the former employee, putting them on notice of their breaches and reserving your business’ right to take action. You should set out clear reminders about their ongoing obligations to your business in respect of confidential information and quote the clause in their employment agreement that you are relying on. You can also raise the employee’s implied duties under general law. The letter should request either a return or destruction of the confidential information and a request for the employee to cease using the confidential information.

In some cases, you may consider seeking undertakings from the employee that they will cease misusing your business’s confidential information and comply with their obligations. Undertakings should be carefully drafted, as they can be relevant in future court proceedings if the matter escalates further. An employment or disputes lawyer can assist with drafting a reminder of obligations letter and advise on tactical options moving forward. 

Suppose the employee persists, and you can predict or are currently experiencing serious harm to your business. In that case, you might consider seeking an urgent court order, called an injunction, to compel the employee to stop using your information. Injunctions can be complex and are often time-critical. For this reason, you must seek advice from a lawyer as soon as you become aware of an employee’s misuse of confidential information.

Competition Threats

Often employees who have been dismissed may make threats to poach clients or start a competing business. If you notice any of this behaviour occurs, you may be able to enforce a restraint of trade clause in the employment agreement. 

A typical restraint of trade clause aims to prevent employees from:

• working for competitors or becoming a competitor; and
• soliciting your business clients, suppliers, employees or contractors or interfering with any of those relationships.

Enforcement measures for a restraint of trade clause are similar to enforcing confidentiality clauses, as mentioned above. You should generally start with a letter that outlines the employee’s obligations and asks them to cease their actions. If the letter is unsuccessful, you might be able to pursue a claim against them in court.

Enforcing a restraint of trade clause is not as simple as it might seem, as you will have to prove that the restraint is reasonable to protect your business interests. Courts will not help if they think the restraint goes beyond providing adequate protection to your business. It is a good idea to ensure you have a valid claim. Likewise, you should ensure that you have properly drafted the restraint clause.

Key Takeaways

As with any potential dispute with an employee, it is important to have a well-drafted employment contract. This will clearly outline both your and the employee’s obligations after they stop working for you. If you need assistance preparing an employment agreement or pursuing action against a former employee, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions