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

We've written about non-competes involving firework choreographers, dog groomers, dance instructors, recruiters, executives, and salespeople.  The point is they run the gamut.  Periodically we will cover some of the more interesting cases out there.  Here's what's happening:

 The Florida Tatoo Artist

In a case  from last year, a Florida court enforced a non-compete agreement against a tattoo artists who was alleged to have a violated a non-compete agreement that included a 15 mile radius. The artist was alleged to have taken the customer list of his former employee and set up shop down the road.  Would there have been a different outcome if the artist hadn't taken the list?  It's a lot easier for judges to rule in favor of the ex-employee when they don't take things with them.

 Microsoft Strikes Again

A Washington state court judge issued a temporary injunction barring a former Microsoft employee from working for a competitor in the cloud computing business. The employee argued the scope of his work for Microsoft was international as opposed to his domestic oriented new job. The judge did not agree and the employee is barred from working for his new employer at lease through trial.  Microsoft is aggressive when it comes to enforcing their non-competes and appears to have a lot of success.  It also helps to enforce them in your backyard, King County, Washington.

IBM Non-Compete No Good

In this case a New York judge refused to enforce a non-compete agreement against a former IBM employee who was going to work for Hewlett Packard. The court held that IBM didn’t provide any trade secrets to the employee, other employees were not subject to similar type agreements, and there was testimony that the non-compete was merely a retention tool to keep employees from leaving. 

If you've run across any cases of note please let us know.

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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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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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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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