Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Langley Weinstein LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

As discussed here previously, Texas non-compete and non-solicitation agreements are alive and well and the Texas Supreme Court has made them easier to enforce. Doctors are frequently the targets of non-competes and they are legal in the state of Texas. 

The Texas Legislature has gone out of its way to set forth provisions necessary to make a non-compete enforceable against a doctor in  Section 15.50 of the Texas Business & Commerce Code. The highlights:

Patient Records/Care:  The non-compete must: (1) not deny the physician access to a list of his/her patients upon departure;  (2) provide the physician access to their patients' medical records when authorized by the patient; and (3) the physician must not be prevented from providing treatment to an acutely ill patient.

Buy-Out Provision: The statute also requires that the non-compete provide for a buy-out of the non-compete at a reasonable price or as determined by a mutually agreed arbitrator or one chosen by the court. 

In sum - read the statute to make sure your non-compete complies with the statute, don't play games with patient records or care, and provide a buy-out provision.

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A while back we discussed the DOJ's investigation into allegations that technology giants in Silicon Valley were effectively preventing computer programmers from making job changes by agreeing not to poach their competitors' employees.

Last week the DOJ filed a lawsuit along with a proposed settlement with Apple Inc., Adobe Systems Inc., Google Inc., Intel Corp., Intuit Inc. and Walt Disney Co.’s Pixar that will prevent these employers from agreeing not to poach one each others' employees.  

Basically it goes something like this.  We agree that my recruiters won't cold call your employees and your recruiters won't cold call my employees.  That way we can keep them from moving - or at least slow down movement.  The DOJ didn't like this practice because it violates anti-trust laws.   Here is a redacted email that was between Google and a prospective Apple candidate:

From: XXXXX XXXXX <XXXXX@google.com>
Date: XXXXXXX XX, 2008 X:XX:XX AM PDT
Subject: Re: Google Opportunities- Follow up email…

Thanks for getting back to me.  I don’t believe that we have been in
contact previously - apologies if I am wrong about this.

From your reference to the [APPLE DIVISION], I take it that you are
currently working there.  If this is the case, we will not be able to
proceed with your application.  Google has an agreement with Apple
that we will not cold call their staff.  If you are not currently
working at Apple and are interested in learning more about [A GOOGLE DIVISION]
please let me know and I would be happy to chat with you.

Thank you again for returning my email

What's interesting about the practice is the effect of California's disdain for non-competes.  In Texas an employer could simply attempt to lock down the employee for some reasonable period of time with a non-compete agreement.  Not in California - Exhibit A is Mark Hurd who recently went from HP to Oracle.  Would the practice these companies allegedly engaged in have been necessary if there was an enforceable non-compete?  Probably not.  The question remains how many other employers, in other industries, have the same or similar practice?

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Mark Hurd and HP settled their lawsuit yesterday. Hurd will return restricted stock to HP (worth approximately $13.6 million) and continue to work for Oracle. What can we learn from the Hurd/HP affair?

• HP’s suit against Hurd was fraught with legal questions.  Chiefly, was the Hurd non-compete enforceable under California law?  Nevertheless HP could not wait to file suit and needed some type of resolution. Was this perhaps a message for future employees or executives? Bottom line, it could not sit on its hands and do nothing.
• Mark Hurd bought his way out of his non-compete. As we have discussed here before, employees considering a move can always negotiate with their employer to provide some type of consideration – $13 million in stock options - to get out of the non-compete. Hurd’s compensation package from Oracle probably makes up for this loss so don't' feel too sorry for him.
• The fact that HP did not immediately seek a temporary restraining order to prevent Hurd from working for Oracle probably indicated that HP was concerned about the strength of its case. If I had to guess, I would assume the lawyers were concerned that they could not meet their burden under California law, which does not look favorably upon non-competes.
• Hurd could have sued first and sought to declare the non-compete unenforceable. Instead he chose to wait. It appears he played it right. There was no TRO that prevented him from working. Yes, Hurd had to give up restricted stock but some payment was probably in his calculus to make the move to Oracle.  It would be interesting to know if Oracle indemnified Hurd for the lawsuit brought by HP and will end up paying him for the stock he gave up anyway. 

Well played Mr. Hurd.  From HP's perspective, at least it got its stock back.

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• Email - Does the company monitor employee email - probably not.  As distasteful as it may sound someone in HR or someone on the business side may need to examine the substance of the employee's emails (from the company email address).  How far back? Depends on the situation.  The employee's  emails need to be scrubbed to determine if they are offloading or have offloaded proprietary information to competitors or personal email accounts for future use.  Further, the IT department needs to maintain and preserve the email account but end the employee's access to the account either immediately or upon some agreed time.

• The network - Most employees are not going to email company information to a competitor or even a personal email account - some still do though.  The delivery device of choice is the thumb drive.  It's small, cheap, and can hold a lot of information.  I'm no IT expert but many IT folks can determine what type of downloading an employee has been up to including the use of zip drives or thumb drives.  How far back should the company go?  As far as necessary to obtain some "comfort" level.  

• Beyond email and the network - Many companies have proprietary databases where customer/client information is maintained.  In one non-compete case a client was able to show that the former employee had dumped the entire database (through printing) the night before they were fired.  Can you do the same?  Many databases require an additional log in and indicate the when, what and where of the employee access.  Was there a middle of the night access prior to quitting or strange access from home? Find out.

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Typically, employers use non-compete clauses to prevent former employees from competing with them after they've provided them with trade secrets, customer information, or other proprietary information. Non-solicits can essentially have the same effect - by restricting or preventing a former employee from calling on or contacting former customers. Here is an example:

You hereby agree and covenant that during your employment with XYZ Company, and for a period of one year thereafter, you shall not . . . : (1) encourage the customers of XYZ company to refrain from doing business with XYZ Company; (2) solicit the business or accounts of the XYZ Company’s customers; and (3) introduce by telephone, email, or any other method: (i) any sales representative that is employed by or otherwise affiliated with you; or (ii) any subsequent employer you may have ...

Former employees can conceivably use social media sites like LinkedIn and Facebook to reach out to former customers. In the TLK Networks case, a former employer sued former employees over a non-compete and used LinkedIn communications as evidence. 

 Through "updates" and "tweets" individuals can reach out to possibly hundreds of individuals with a short message. Something like "Anyone aware of an individual who might be interested in a position with [insert name of company] doing xyz?" or "Anyone have any leads for someone who might be interested in purchasing [xyz product] for [xyz price]?

Though the solicitation is not directed at any particular individual what if former customers or clients who might be interested in the job or product could follow up on the communication? While we tend to think of solicitations as a phone call or letter, social networks blur what is really a solicitation.

A non-solicit could be drafted that could address this communication and specifically prohibit it. The employer could define an improper solicitation "to include any type of communication, including but not limited to, status updates, tweets, etc. on any type of social network to include but not be limited to LinkedIn, Facebook Twitter, etc."  Employers need to review their agreements to make sure they address ever evolving communications tools like social media.

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As you probably know, HP filed a lawsuit against former CEO Mark Hurd in California seeking to prevent him from going to work for competitor Oracle.  The Wall Street Journal has a solid account of the lawsuit and analysis of the claims.

The lawsuit asserts causes of action against Hurd for breach of contract and and threatened misappropriation of trade secrets. California law disfavors non-compete agreements, unlike Texas, so Hurd's employment agreements are not called non-competes but have the same effect. The “Protective Covenants” section of his employment agreement prevent Hurd from disclosing trade secrets and soliciting HP customers, employees, and suppliers. There is also a provision which has the net effect of a non-compete:

(a) No Conflicting Business Activities. I will not provide services to a Competitor . . . that would involve Conflicting Business Activities in the Restricted Geographic Area (but while I remain a resident of California and subject to the laws of California, the restriction in this cause . . . will apply only to Conflicting Business Activities in the Restricted Geographic Area that will result in unauthorized use or disclosure of HP’s confidential information).

 The crux of HP's claim is that because Hurd was exposed to trade-secrets and business strategies while CEO for HP he will disclose or use that information while working for Oracle - this sounds like the inevitable disclosure doctrine but is styled as threatened misappropriation of trade secrets. What is the doctrine? Here is Linda Stevens take:
 

There are circumstances in which trade secrets inevitably will be used or disclosed, even if the defendant swears that he or she will keep the information confidential. Courts applying the doctrine have differed over its reach and the circumstances required for its application, but, generally speaking, the doctrine applies when a defendant has had access to trade secrets and then defects to the trade secret owner's competition to perform duties so similar that the court believes that those duties cannot be performed without making use of trade secrets relating to the previous affiliation.

Texas Court do not recognize the inevitable disclosure doctrine but have come close – California does not appear to either. HP now seeks an injunction to prevent Hurd from working for Oracle based on his contractual obligations and threatened misappropriation of trade secrets.

Hurd was forced out at HP after a sexual harassment scandal, but he was paid millions of dollars. It will be interesting to see how the Judge balances the equities on this case. Is the protective covenant enforceable under California law? (I’ll leave that to a California lawyer to determine.) Will the Court consider the fact Hurd has been paid a significant amount of money to sign these agreements?  Most importantly, will the Court believe he will disclose HP trade secrets at Oracle?  We will keep you posted.
 

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Friends: I am pleased to announce that I have become a partner at Langley
Weinstein LLP. Langley Weinstein LLP is a Texas trial and appellate firm
practicing in the areas of surety and construction, commercial litigation, and
employment litigation with offices in Dallas and Houston.

My new contact information is:

Robert K. Radcliff
Langley Weinstein LLP
901 Main Street
Suite 600
Dallas, Texas 75202
rradcliff@lwllp.com
TEL: 214.722.7160
FAX: 214.722.7161

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