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

Last year we profiled the TEKSystems v. Hammernik case that was filed in the United States District Court for the District of Minnesota.  The case was significant because it was one of the first where a Plaintiff seeking a temporary injunction used communications from social media (LinkedIn) as evidence of a non-solicit violation. 

Ultimately, the case was resolved through entry of a stipulated permanent injunction.  This required the Defendants to among other things: (1) search their computers for TEKSystems documents and information and return or destroy the information; (2) submit their computers to forensic inspection; and (3) not contact, solicit or accept business from any persons identified in an agreed to customer list.

Though the lawsuit was novel in terms of social media evidence it’s resolution was not.  Parties frequently agree to a set of customers that are essentially “hands off” in order to resolve these type of disputes.  

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We have previously addressed rumblings that the Department of Justice was investigating agreements between companies where they agreed not to contact each other’s employees for hiring purposes. 

The companies involved were Adobe, Apple, Google, Intel, Intuit and Pixar.  In the competitive impact statement, the DOJ outlined the nature of the agreements.  For example, the Google-Intuit agreement provided for the following:

 

Beginning no later than June 2007, Google and Intuit agreed to prohibit Google from cold calling any Intuit employees.  Senior executives at Google and Intel reached this express agreement through direct and explicit communications.  The executives actively managed and enforced the agreement through direct communications.  The agreement covered all Intuit employees and was not limited by geography, job function, product group, or time period.  In furtherance of this agreement, Google listed Intuit among the companies that had special agreements with Google and as part of its “do not call” list.  Google policed the agreement to ensure it was followed, including by investigating complaints from Intuit that Google had violated the agreement.  On each occasion, Google determined that it had not violated the agreement and informed Intuit.

 

From the pleadings filed by the Department of Justice, it’s clear these were rather sophisticated agreements.  Effectively included were review and complaint procedures in the event of an alleged violation of the non-solicit agreement.  These deals were essentially the opposite of broker protocol, which allows stockbrokers to move freely between members of the broker protocol without fear of a lawsuit. 

 

Though employers can certainly enter into non-compete and non-solicitation agreements with their employees as long as they comply with applicable state law, it would appear to be next to impossible for companies to enter into company-company agreements with one another to shut down the movement of their employees.   

 

The proposed final judgments prohibits the companies from entering into these agreements and requires them to disclose certain information to the DOJ, among other things.  There were no financial penalties disclosed. 

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In Texas there are other options to prevent departing employers from competing with your business:

A Non-Solicitation: Instead of tying down your employee with a non-compete consider a non-solicitation. The non-solicit will still have to meet non-compete standards, but it can be used for specific customers as opposed to geographic areas. The rub, there will always be a debate about the right of a customer to do business with a departing employee and whether the former employee actually solicited the business or was contacted.

 

A Non-Disclosure: An employer can always attempt to lock down an employee by preventing them from using proprietary information they were exposed to through a non-disclosure. Basically the argument is the former employee cannot work for the company’s customer because they are using the company’s propriety information. This is very close to the inevitable disclosure doctrine, which is not recognized in Texas, but a non-disclosure should certainly be considered.

 

Compensation: Can the employer somehow tie future compensation into not competing? Basically, the company will agree to make payments to the departing employee for a period of time after they depart, but payment is dependent on non-competition. The rub, the company probably cannot enforce this agreement in Court, but if the employee decides to compete they don’t get any money.

 

The Anti-Raid Provision: The anti-raid provision prevents a departing employee from hiring your employees. The rationale is to keep the departing employee from setting up shop down the street.

 

There are other options as well, but these should be considered as part of any employment agreement. The more hurdles that can be put in the way of a departing employee, the better.

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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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Minnesota based TEKsystems Inc. sued three former employees for violating non-compete and non-solicit agreements.  TEKSystems is in the technical recruiting business and it claims one of the former employees was contacting its contract employees.  The complaint alleges Defendant Brelyn Hammernik used LinkedIn to solicit these employees:

For example, Hammernik has communicated with at least 20 of TEKsystems’ Contract Employees using such electronic networking systems as “Linkedin.”  Hammernik has, at a minimum, “connected” with the following TEKsystems’ employees through “Linkedin" . . . In her contacts with Tom Peterson, Hammernick asked Peterson if he was “still looking for opportunities.” She then stated that she “would love to have [you] come visit my new office and hear about some of the stuff we are working on.”

Evidence doesn't get much better then this LinkedIn email:

Linkedln

Tom Peterson has sent you a message.

Date: 12/08/2009

Subject: RE: Brelyn

 

Hi Brelyn,

Indeed I am still looking. I have time, though!

Lets get together. Where are you working these days? Your profile still has you working at TEK Systems. BTW - my email address is lipidfish@gmail.com if you would prefer the non-Linkedln route.

Tom

 

On 12/08/09 8:47 AM, Brelyn Hammernik wrote:

Tom—

Hey! Let me know if you are still looking for opportunities! I would love to have come visit my new office and hear about some of the stuff we are working on!

Let me know your thoughts!

Brelyn

Needless to say it will be very difficult for Hammernik to defend this type of conduct.  I've used emails in non-compete/non-solicit cases but never LinkedIn evidence.  As individuals migrate from company to company they routinely use LinkedIn and other social networking sites to update contacts on their whereabouts.  Usually, most updates don't contain an outright solicitation like this. The moral of this story:  Employees - be smart about communications that are blatant solicitations.  Employers - watch former employees social networking activities once they have departed.

 

 

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With employers aggressively protecting customers and trade-secrets with non-compete agreements,  placement and human resource professionals will continue to encounter potential candidates/employees that have non-compete agreements and other restrictive covenants.   

Every employment interview should include exploration into these issues. 

Below are some suggested questions/considerations:

• Has the candidate signed a non-compete, non-solicitation, or non-disclosure agreement?  If so, request a copy.
• Does the scope of the non-compete conflict with the proposed employment? Is the candidate working in the same industry? Does the scope of the non-compete include the proposed geographic location?  What is the duration of the non-compete?
• Is there a choice of law or venue provision in the non-compete?   The enforceability of a non-compete will vary from state to state.
• Is the non-compete enforceable?  It may not be, but the best bet is to talk to a lawyer.  
• Gather intelligence: has the former employer sued to enforce its non-compete previously? 
• Is there any potential that the candidate could resolve the non-compete with a buy-out or some other agreement? 
• Is litigation an acceptable risk for the new employer?
• If there is a non-solicit, can the employee work within the parameters of the non-solicit?  Many times non-solicits are simply non-competes with a different name.  Some non-solicits only prevent the former employee from contacting former customers.  In that case, there is nothing that prevents the customer from contacting the employee. 
• Remember, that any communications you have with a prospective employee might be subject to production in a lawsuit.  Be smart about email.

Going through the time and expense of hiring or placing someone to find out their ex-employer has filed a non-compete lawsuit would be devastating.  The questions above are a good starting point for screening, but a lawyer should always be consulted.

 

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Happy holidays to you and your family.

Below is a link to an article written by Seattle attorney Jill Pugh regarding a Nebraska Court of Appeals opinion affirming the enforceability of a non-solicitation agreement. Aon Consulting, Inc. sued to enforce the agreement against a former employee. The agreement was actually signed by the employee with a predecessor company that was acquired by Aon.

Here is a link to the opinion.

Here is a link to the blog.

Disclaimer

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The Scenario
Assume the following: Jordan James, a successful legal recruiter employed at Company A has left to start her own placement firm. James signed a non-compete and non-solicitation with Company A and it is believed that James took her Microsoft Outlook contacts that contains all of her client information. What should Company A do and what should James anticipate?

Preliminary Considerations

(1) What are Company A's objectives? Is James worth the time and money from a cost/benefit analysis? Is James competing with Company A a threat? Even if not, has she taken information that is important to Company A? The reality is James will be able to compete some day against Company A but she should not be able to with information that does not belong to her or in violation of her contractual covenants.

(2) Is the non-compete enforceable? Before Company A instructs its lawyer to file a lawsuit and obtain a temporary restraining order (discussed in next week's entry), the next question should be what is the likelihood of enforceability of the non-compete? Obviously, no lawyer can predict what a Court can do, but they can give an educated guess. Hopefully, Company A already had this discussion with the lawyer who drafted the non-compete, but in many cases a lawyer wasn't involved and the law changes.

(3) Are James' documents in order? This includes any employment agreement, her employment file, and any company manuals that contain policies she is subject to. Can you capture (within the confines of the law) James' most recent communications (email/phone messages) with clients? Is there any evidence of James' contacting clients after her departure from Company A?

(4)What clients did James service? Were they serviced primarily by James or others at Company A? Would it make sense to contact the clients James worked with at Company A and let them know she has departed and who will be taking over her responsibilities? Not only will contacting them potentially protect business and preempt James, it is a means for developing allegations in a lawsuit and the basis for a temporary restraining order by finding out if she is talking to Company A clients and customers.

Next, the focus will be the filing of a lawsuit seeking a temporary restraining order.

Disclaimer

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