PREVAILING PARTY’S LITIGATION EXPENSES

A not uncommon provision in employment agreements, separation agreements, or stand alone agreements containing restrictive covenants (e.g. non-competition and non-solicitation) is a “prevailing party” provision.  This kind of provision grants the prevailing party in any litigation over an agreement the right to be reimbursed its, his or her legal fees and costs.

A typical prevailing-party provision will read like the following: “If litigation arises under this Agreement between the Company and the Executive, the prevailing party in such litigation shall be entitled to recover its or his reasonable attorneys’ fees, court costs and out-of-pocket litigation expenses from the non-prevailing party.”

The prevailing-party provision serves as a disincentive for an individual employee to assert his legal rights or to take a risk of violating an agreement.  From the outset, the employer ordinarily would have more financial resources to litigate, and this added provision of saddling the non-prevailing party with all the litigation costs has a chilling effect on the employee’s seeking vindication of his rights.  From the employer’s standpoint, this is precisely the sobering reminder that an employer wants to send to its ex-employees who may choose to test the validity of the employer’s restrictive covenants, especially non-compete clauses.

In any event, the prevailing-party provision is one that must not be overlooked by either the employee or the employer.

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