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

Sam Adams Beer Company recently filed a lawsuit in Massachusetts against a salesman who it alleges went to work for a competitor in California.  The case illustrates the importance of a venue provision in an employment contract, which we recently discussed here. 

California is downright hostile when it comes to non-solicit and non-compete agreements for employees.  The defendant employee went to work for a California beer maker and lives in California, but his employment agreement with Sam Adams provides for venue in the state of Massachusetts, as well as a choice of law provision for Massachusetts law.  The Complaint alleges:

The Employment Agreement is governed by Massachusetts law. Paragraph 12, the governing law clause, provides that the “validity, interpretation and performance of this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.

 

The Agreement further provides that “Any dispute between Employee and the Company shall be litigated exclusively in the state or federal courts of The Commonwealth of Massachusetts, to whose jurisdiction Employee hereby agrees to submit.

Of course, this puts the employer in the position of trying to enforce a non-compete against an out-of-state employee.  That said, Sam Adams also sued the new California employer as well which pragmatically will make enforcement easier. 

The complaint is interesting because it focuses upon the inevitable disclosure doctrine.  It alleges that former employees had been exposed to proprietary information , including business strategies, that he will inevitably disclose during his employment with his new employer.

This is another example of a post-employment covenant with a salesperson, this time in the adult beverage industry.  We will continue to monitor this case.

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 Imagine a scenario where Company A hires Company B's former employee.  A few months go by and Company A receives a demand letter from Company B informing it that: (1) the former employee has a 2 year non-compete with Company B; (2) if Company A does not end its relationship with the employee it will be sued.  (Assume the non-compete is enforceable.) 

Being both pragmatic and litigation gun shy, Company A terminates the employee.  The employee sues Company A claiming the termination violates public policy and seeks money damages.  Ludicrous?  No, it happened in California.  California lawyer Laurie Rust had the following take on the case:

When confronted with a request or demand from a former employer to honor a non-compete agreement, California employers should not respond by terminating the subject employee unless they are confident that the non-compete agreement is actually enforceable under California law.

California law disfavors non-compete agreements whereas Texas permits them as long as they comply with certain conditions discussed here previously.  I am not aware of any Texas precedent that would somehow subject an employer to liability for honoring a non-compete agreement.  That being said, it will depend on the circumstances.  Is the employee an at-will employee or does the employee have an employment agreement that would address the termination?  What is the likelihood of the enforceability of the non-compete? 

The California case certainly raises interesting issues.  Texas employers should always determine whether a prospective employee has any agreements with his or her former or current employer (non-competes, non-solicits, confidentiality agreements etc.) that could impact future employment.  If there is such an agreement try to determine whether it is enforceable.  A little analysis up front can save time and money down the line. 

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In late April Hewlett Packard hired EMC storage division president David Donatelli.  Donatelli  worked  22 years for EMC and made $17 million over the last three.  The hire reportedly stunned the industry.  As part of his new employment Donatelli was going to relocate to California.

Donatelli was first to the Courthouse and filed a lawsuit in California challenging the 12 month non-compete in his employment agreement.  It reads:

For the twelve-month period following the effective date of your termination, for any reason, from the Company, you agree not to directly or indirectly compete with the Company ... including any services ... as an employee ... to any entity that is developing, producing, marketing, soliciting or selling products or services competitive with products or services being developed, produced, marketed or sold by the Company as of the effective day of your termination.

California is generally considered an unfavorable venue for the enforcement of non-competes as previously discussed.  In particular, California does not recognize the doctrine of inevitable disclosure.  (Basically, the doctrine assumes that when an employee moves from one company to another she will inevitably disclose trade secrets obtained from the prior company.) 

EMC filed its own lawsuit in Massachusetts and was initially successful in obtaining an injunction restricting Donatelli from taking the HP job.  In it's opinion, the Court rejected Donatelli's argument that California law applies and gave no defference to the fact that his lawsuit was filed first in California.  Donatelli's argument that California law applies is undermined by the fact that there is a Massachusetts forum selection clause and choice of law provision in his employment agreement. Additionally, he is a resident of Massachusetts.  A hearing is set for later in the month in the California case.  How the California court will reconcile the Massachusetts ruling and Massachusetts law remains to be seen. 

(H/T Brad Reese)

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Recording phone conversations.

One issue that I frequently receive questions about is whether it's permissible to record phone conversations that you are a party to?  The answer varies from state to state.  In the absence of more restrictive state law, federal law permits an individual who is a party to the telephone conversation to record it. 

Some states require both parties to consent to the recording (two-party consent).  Texas does not (one-party consent).  The rub arises when there is an interstate call between a one-party state and two-party state. The California Supreme Court (.pdf) has held that in such a situation, two-party consent is necessary.

Recording a phone call can be a useful tool for avoiding misunderstandings and I have even used them in breach of contract cases where an oral agreement is disputed.  If you are going to record, the best practice is to get the consent of the other party.  If you're not going to do that make sure you know the law of your state and the state you are calling. 

Polygraph testing your employees.

Jon Hyman provided a primer on employee polygraph testing in the Ohio Employer's Law Blog this past week.  Frankly, I had never heard of the Employee Polygraph Protection Act of 1988 but it prohibits with limited exceptions:

• Requiring, requesting, suggesting, or causing an employee or prospective employee to take or submit to any lie detector test;

• Using, accepting, referring to, or inquiring about the results of any lie detector test of an employee or prospective employee; and

• Discharging, disciplining, discriminating against, denying employment or promotion, or threatening to take any such action against an employee or prospective employee for refusing to take a test, on the basis of the results of a test, for filing a complaint, for testifying in any proceeding, or for exercising any rights afforded by the EPPA.

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