From the practicing bar...For the Defense, by DRI, a national monthly newsletter for defense practitioners... SYSTEMATIC HIRING-AWAY Stop Competitors' "Corporate Raiding" Patrick D. Robben Patrick D. Robben is a litigation attorney with the law firm of Morrison, Fenske & Sund in Minnetonka, Minnesota practicing in the areas of commercial disputes, trade secrets and intellectual property law, and employment law.
Courts continue to struggle to find the legal theories necessary to adjudicate such claims. The days of the lifelong "company man" are long gone. One of the hallmarks of our modern economy is the tendency of employees to change jobs frequently during their careers. This worker mobility is a strength of our economy, as it helps employees find the position in which they would be most productive. Another hallmark of our economy is the transition from an industrial economy into an information economy in which the primary strength of many companies is the skills and expertise of its white collar workforce in handling information. Problems can arise when an employee who has gained access to confidential and proprietary business information during his or her employment leaves the employer to work for a competitor. States have established a regime of statutory and common law protections to protect former employers from the misuse of sensitive information shared with employees during their employment tenure. These laws incorporate the principle that employees should not be restrained from gainful employment, but should not disclose a previous employer's confidential information. Similar problems may arise for employers when workers who have earned goodwill with customers through the employment relationship depart the company. Employees may be held to contractual commitments to not immediately accept work with a competitor to avoid unfairly trading on that goodwill provided in part by the investment of the former employer. A large body of trade secret and noncompete agreement law has arisen to address these scenarios. A more unsettled area of the law involves the issue of "corporate raiding." Corporate raiding entails the systematic hiringaway of several employees by a competitor to attain a competitive advantage over the rival. In the absence of noncompete agreements, is such conduct by a competitor against a rival lawful? After all, employees should be free to pursue employment opportunities so long as they are not violating noncompete obligations or duties to preserve a former employers' confidential information. Courts continue to struggle with how to adjudicate such claims.
The Duties Owed to a Former Employer The most obvious circumstance in which an employee's ability to switch an allegiance to a competitor is when an employee has signed a valid noncompete agreement with the former employer. Courts generally disfavor restrictive covenants that limit one's right to work and earn a livelihood since they restrain free trade. Nat'l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982). "In determining whether to enforce a particular noncompete agreement or provision, the court balances the employer's interest in protection from unfair competition against the employee's right to earn a livelihood." Kallok v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998). Most states will enforce noncompete agreements provided they comply with each state's perquisites for validity and reasonableness. (California is a notable exception. Section 16600 of California's Business and Professions Code provides that "[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.") The exact contours of what constitutes a reasonable restraint on employer mobility, and under what circumstances the agreement must have been entered into in order to be valid, vary somewhat from jurisdiction to jurisdiction. Typical factors considered in the reasonableness of a noncompete agreement include whether the agreement's limitations on the employee's post-employment competitive activities are reasonable in geographic and temporal scope. The limitations must also be reasonably calculated to protect the employer's legitimate business interests. Such interests can include loss of customer goodwill or the protection of confidential or proprietary information that would be impossible as a practical matter to protect if the employee immediately switched to a competitor. In some states, courts have discretion to "blue pencil" an overly restrictive covenant. See, e.g., Professional Investig, and Consult. Agency, Inc. v. Kingsland, 591 N.E.2d 1265, 1269 (Ohio Ct. App. 1990) (judicial bluepenciling of an overbroad agreement is permitted but discretionary). Other states apply an "all or nothing" approach and will not blue pencil a noncompete agreement in order for it to pass muster. See, e.g., Harville v. Gunter, 495 S.E.2d 862, 864 (Ga. Ct. App. 1998) (noting state courts have rejected "blue-pencil" doctrine even when contract contained severability clause). Even in the absence of a noncompete agreement, employees generally owe duties not to disclose previous employers' trade secret business information. In over 40 states and the District of Columbia, these duties are codified in a version of the Uniform Trade Secrets Act. The remaining states protect trade secrets through common law, or other statutory schemes that do not track the Uniform Act.For the full text of the story contact DRI. For the Defense is also on Lexis and Westlaw.
