Suing a Former Insider: How Businesses Can Protect Themselves When Threats Come From Within

When businesses face disputes, the opponent is usually an outside competitor, vendor, or partner. But sometimes the greatest threats come from inside—partners, executives, or employees who once had access to everything. Colleen McKnight, trial lawyer and founder of McKnight Law, explains why suing a former insider is different from other types of litigation, what makes these cases especially challenging, and how business leaders can protect their companies.

Why are insider disputes different from other business conflicts?

Litigation with insiders is unlike fighting an external opponent because insiders owe specific legal duties. General partners, officers, shareholders, and directors all carry fiduciary duties of loyalty and care. When those duties are breached, lawsuits often follow.

The challenge? Insiders have extensive knowledge, access to documents, and insight into the company’s weak points. They may know where the “skeletons” are hidden and who in the organization is most likely to side with them. This makes them uniquely dangerous adversaries.

What patterns are most common in insider disputes?

Colleen McKnight explains that the most common disputes involve:

• Financial self-dealing – board members or executives using company resources for personal gain.

• Trade secret theft – insiders taking proprietary knowledge to benefit competitors or themselves.

• Reputational harm – internal disputes going public, exposing “dirty laundry,” and damaging brand credibility.

• Conflicted exits – when an insider leaves under hostile terms, knowing enough to cause serious harm.

In many cases, litigation strategy also doubles as public relations. Pleadings may be written with both judges and industry stakeholders in mind, as public perception can directly affect investor confidence and business stability.

Why is speed critical in insider litigation?

When dealing with insiders, speed is oxygen. Immediate action can prevent significant damage. Businesses may need to quickly file for a Temporary Restraining Order (TRO), demand the return of company devices, or cut off access to sensitive information.

Colleen McKnight emphasizes creating “need-to-know” teams inside the organization, limiting information flow to prevent leaks and ensure litigation strategy remains protected.

How can contracts and NDAs strengthen your position?

Contracts act as powerful leverage in insider disputes. Non-competes, NDAs, and partnership agreements can justify swift legal remedies such as TROs, provide shortcuts in proving confidentiality, and ensure attorney fees are recoverable in court. Even a mediocre contract can serve as a strategic tool in litigation.

What immediate steps should businesses take if an insider becomes a threat?

If a business suspects an insider is breaching duties or misusing company assets, leaders should:

• Secure devices and hire forensic experts.

• Issue litigation holds internally and to the insider to preserve evidence.

• Review contracts and agreements that apply to the insider.

• Consult a lawyer immediately before confronting the insider.

• Avoid social media disputes and public statements that may harm the case.

McKnight warns against trying to handle disputes informally or relying on internal IT forensics, both of which can weaken the case.

How should leaders manage the emotional side of insider disputes?

Insider disputes often feel like personal betrayal. Colleen McKnight validates these emotions but stresses the importance of shifting perspective. Litigation is about asset protection, not vindication. Leaders must stay focused on protecting the business rather than acting out of anger or frustration.

Delegation can help. In larger organizations, a parallel workstream can allow executives to stay focused on daily business operations while the legal team handles litigation.

What mistakes do companies make without legal guidance?

• Trying to negotiate directly with the insider.

• Failing to preserve evidence.

• Rushing to make public statements for reputation management.

These missteps can weaken a company’s position and make litigation costlier.

Can acting quickly really make a difference?

Colleen McKnight recalls a case where an employee left with every employee’s W-2 forms. By moving quickly, her team secured a TRO, stopped further misuse, and reassured employees that the situation was under control. In another case, however, a company delayed action for weeks, and the court denied emergency relief because the threat was no longer considered “immediate.”

How can businesses prevent insider threats before they arise?

The best protection is proactive. Strong contracts, clear policies, and consistent communication with key employees reduce the risk of disputes. McKnight advises business leaders to stay aware of employee satisfaction, manage equity distributions carefully, and always have a trusted lawyer in place before emergencies arise.