Trade Secrets & Noncompete Blog

Trade Secrets & Noncompete Blog

News & Updates On Developments in the Law of Restrictive Covenants, Unfair Competition & Trade Secrets

Tag Archives: Non-Solicit Agreements

“List of Holiday-Related Trade Secret/Non-Compete Cases”

LightsWhether you are a young child missing teeth, or a grown-up taking account of her life, or Santa Claus himself checking up on everyone else’s life, many of us make lists at holiday time.  They can be lists of gifts we want, or those we need to get, or people we wish to see or write to, or things we need or want to do before the end of the year.  Sometimes they are just lists of things that happened this year or that we want to happen next year.  Certainly there are lots of “Top Ten” holiday lists.  This … Continue Reading

Non-Solicitation Violation Leads to $6.9M in Damages – Employment Law This Week

Featured in the top story on Employment Law This Week:  Former employees turned competitors in Pennsylvania are hit with $4.5 million in punitive damages.

An insurance brokerage firm sued a group of employees, claiming that they violated their non-solicitation agreements by luring away employees and clients to launch a new office for a competitor. A lower court awarded the firm nearly $2.4 million in compensatory damages and $4.5 million in punitive damages because of the defendants’ outrageous conduct. On appeal, the appellate court agreed and upheld all damages.

See the segment below and read our recent blog post on this Continue Reading

The Emotional Component of Restrictive Covenant Litigation

Jackson C. Jackson

Zachary C. Jackson

The United States District Court for the Northern District of Indiana (Hammond Division) recently ruled on cross motions for summary judgment in the case of E.T. Products, LLC v. D.E. Miller Holdings, Inc. (Case No. 2:13cv424-PPS).  The dispute in that case stemmed from the acquisition of a portion of a company.  Essentially, the purchaser claimed that the seller was violating the restrictive covenant prohibiting him from soliciting the purchaser’s customers, and the seller countered that the purchaser violated the general release in the purchase agreement.  In ruling on the parties’ cross motions for summary judgment, the Court … Continue Reading

Restrictive Covenant Binds Bad Leaver – Employment Law This Week

One of the top stories on Employment Law This Week – Epstein Becker Green’s new video program – is about a bad leaver and the hefty price he had to pay.

A former VP of Fortinet, Inc., must pay nearly $1.7 million to the company, after poaching three of his subordinates when he left his job for a competitor. The former VP joked in an email that the employees he took with him were “three bullets to the back of the head” of his former employer. In the arbitration, a former California state judge ruled that the employee had breached … Continue Reading

Bad Leaver Pays the Price

A former California State judge in an arbitration awarded nearly $1.7 million to an employer against its former employee based primarily on his acts taken going out the door.  His joking email with a co-worker after recruiting three others, characterizing their resignations as “Three bullets to the back of the head” of his employer, was clearly shooting himself in the foot in the eyes of the arbitrator.  The Award is interesting for many reasons – – the interplay between fiduciary duties and non-solicitation of employees provisions, the allowable damages when such a fiduciary duty is breached by co-worker solicitation, and … Continue Reading

Illinois Appellate Court Strikes Down Overbroad Noncompete, Nonsolicit, and Confidentiality Provisions and Also Refuses to Judicially Modify Them

In a decision issued in late October, AssuredPartners, Inc. et al. v. William Schmitt, 2015 IL  App. (1st) 141863 (Ill. App. 2015),  the Illinois Appellate Court struck down as overbroad and unreasonable, the noncompete, nonsolicit and confidentiality provisions in an employment agreement.  The Court then refused to judicially modify or “blue pencil” these provisions because the Court deemed their deficiencies “too great to permit modification.”  This decision is essentially a primer on current Illinois law regarding restrictive covenants and confidentiality agreements.

Starting with the noncompetition provision at issue, the Court held that it was overbroad because … Continue Reading

“Red River Rivalry” Reaches Right To Restrict Employment

The United States Court of Appeals for the Fifth Circuit opened its October 29th opinion in Cardoni v. Prosperity Bank by noting that “[i]n addition to their well-known disagreements over boundaries and football” known as the Red River Rivalry, “Texas and Oklahoma do not see eye to eye on a less prominent issue: covenants not to compete.”   As the Court went on to note, “Texas generally allows them so long as they are limited both geographically and temporally… Oklahoma generally does not.”  “These different policy choices—Texas’s view which prioritizes parties’ freedom to contract and Oklahoma’s which emphasizes the right … Continue Reading

A Dash of Certainty – Alabama’s New Restrictive Covenant Statute

Alabama has a new restrictive covenant statute.  A few weeks ago, Alabama Governor Bentley signed new legislation which will repeal the 1975 version of Alabama Code Section 8-1-1 titled “Contracts restraining business void; exceptions” and replace it with a new version effective January 1, 2016.

The new law stakes out the permissible scope and purpose of restrictive covenants such as non-compete and non-solicitation agreements.  Unlike some other states with restrictive covenant statutes, Alabama’s new law codifies a middle-of-the-road approach to restrictive covenants.  Essentially, it allows non-compete and non-solicitation clauses for many employees provided they contain reasonable restrictions.  In explaining … Continue Reading

Restrictive Covenants: Better To Ask And Disclose

When recruiting an executive, or when being recruited, it is best practice for the future employer, the employee and any executive recruiting firm involved in the placement to address head-on the existence of any restrictive covenant limiting the future activities of the employee. The New York State Supreme Court – First Department Appellate Division – yesterday upheld a claim that by not clearly disclosing the existence of a non-solicitation restriction in an executive recruit’s employment agreement, the head hunter involved in the placement could potentially be held liable to the new employer for negligent and/or fraudulent misrepresentation. See Amsterdam Hospitality Continue Reading

Non-Solicitation Agreements Are Void in California…or Are They?

There is certainly no question that an employee owes undivided loyalty to his or her employer while employed. For example, no one questions that an employee is prohibited from working for a competitor during his employment. But the law becomes much more complicated once an employee leaves his or her employment. Under what circumstances may a former employee solicit his former employer’s customers? Can non-solicitation agreements ever be enforceable?

California of course is one of a very few states in which non-compete agreements are void as against public policy. Business and Professions Code section 16600 provides that “Except as provided … Continue Reading

The Enforceability Of Employee Non-Solicits Remains Unclear In California

The high profile lawsuit filed on February 11, 2014 by Anschutz Entertainment Group against Shervin Mirhashemi and his new employer, Legends Hospitality, LLC, again raises the question of when a California Court of Appeal will decide whether employee non-solicits are enforceable in California. The Complaint alleges that Mirhashemi started as an AEG in-house attorney and was promoted over time to executive positions and was paid millions of dollars. The Complaint also alleges that Mirhashemi signed various employment agreements at least one of which provided, in part, that he would not “directly or indirectly” “participate in any effort to entice away … Continue Reading

SDNY Judge Instructively Opines On Employee No Hire Agreement

A recent decision from the United States District Court for the Southern District of New York, Reed Elsevier Inc. v. Transitions Holding Co., Inc., provides a useful overview of New York law on restrictive covenants. At issue was an employee non-poach agreement between two companies entered as a result of a settlement in the context of the earlier hiring of another senior executive with a non-compete. Not an unusual situation. What is somewhat unique is that the alleged “poaching” occurred in the context of the acquisition of the restricted employee’s company – – not the recruitment of the restricted … Continue Reading

Court Finds Potential Liability For Sending Cease And Desist Letter

As in-house counsel or the human resources director, you have probably received a frantic phone call from the business folks telling you that a former employee disclosed trade secrets or violated a restrictive covenant and demanding that immediate action be taken. After gathering the facts, the next step is usually to send a cease and desist letter to the former employee, and oftentimes to the former employee’s new employer. Such letters generally set forth the applicable confidentiality or non-compete restrictions as well as the former employee’s offending conduct. As my colleague Kara Maciel recently noted in her blog posting, Cease Continue Reading

Doctor Non-Solicitation Agreement Not Supported By Legitimate Business Interest

Lawyers and clients alike often believe that it is easier to enforce a non-solicitation agreement than a non-competition agreement. Sometimes, that’s true. However, that does not mean that companies can do so without demonstrating a legitimate business interest in the enforcement of that non-solicitation agreement. The recent Illinois Appellate Court decision in Gastroenterology Consultants of the North Shore, S.C. v. Meiselman (2013 Il. App. 1st 123672) highlights this point.

In that case, a doctor named Meiselman left Gastroenterology Consultants (referred to here as GC for short) to work for NorthShore University HealthSystem Medical Group. In his new position, Meiselman treated … Continue Reading

No-Hire Provisions In Settlement and Commercial Agreements — Are they Legal?

The potential antitrust impact of no-hire agreements between competitors has been a hot topic over the last few years, particularly in the high-tech industry where competition for the most talented programmers, developers and engineers is intense. An antitrust class action pending in the US District Court for the Northern District of California against six high tech firms — Intuit, Apple, Google, Intel, Intuit and Pixar – illustrates just how high the stakes can be when a no-hire agreement among competitors is challenged under federal and state antitrust laws. The plaintiffs in that putative class action are five software engineers who … Continue Reading

Peter Steinmeyer Quoted in Article, “5 Tips for Drafting Employment Pacts in the Social Media Era”

Peter Steinmeyer, a Member of the Firm in the Labor and Employment practice and Managing Shareholder of the Chicago office, was quoted in an article in Law360.com titled "5 Tips for Drafting Employment Pacts in the Social Media Era." (Read the full version – subscription required.)

Following is an excerpt:

Facebook, LinkedIn and Twitter have radically changed how companies and employees connect to each other as well as clients or customers, and those changes have left the law — and employment contracts — struggling to keep up, lawyers say.

"Technology and society move quicker than the law, and the law is … Continue Reading

Group Resignation Strategy: Schwab Case In Point

In a new case filed by Charles Schwab & Co. Inc. against former employees who staggered their departures to a competitor, we have a prime example of the risks involved when a team departs over time versus simultaneously. To avoid claims of violations of fiduciary duties or non-poaching clauses, some advise that teams should have the junior members resign first and at a later time the senior members of the group should follow. This approach is fraught with the danger apparently exemplified by the allegations of misconduct made in a case brought by Schwab against several of its former employees … Continue Reading

Battle Rages On In Epic Restrictive Covenant Dispute

In the latest salvo in a long-running legal dispute stemming from a classic raid by a competitor upon a commercial insurance broker’s business and employees, a New York appellate court has refused to dismiss a New York lawsuit in favor of a prior-filed California lawsuit which has already addressed many of the same issues.

One year ago, we blogged about a preliminary injunction issued by the Supreme Court, New York County, in a lawsuit then pitting Aon Risk Services Northeast and Aon Corporation (collectively, “Aon”) v. Michael Cusack and Alliant Insurance Services, Inc. (“Alliant”).

The case arose from a raid … Continue Reading

California Court of Appeal Enforces Stipulated Injunction That Restricts Competition

Co-authored by Ted A. Gehring.

Although the California courts have steadily eroded employers’ ability to contractually limit their former employees’ solicitation of their customers, a stipulated injunction limiting solicitation can still be enforced. In Wanke, Industrial, Commercial, Residential, Inc. v. Superior Court, 2012 WL 4711888, the California Court of Appeal, 4th Appellate District, reversed a trial court order that found a stipulated injunction prohibiting solicitation of a specific customer identified on a customer list could not enforced based on the trial court’s conclusion that the identity of that customer was not a trade secret.

In the underlying action, … Continue Reading

The Continuing Cost of No-Hire Agreements

In December 2010, our restrictive covenant group blogged about the Department of Justice’s complaint against Adobe, Apple, Google, Intel, Intuit, and Pixar. In that complaint, the DOJ alleged that those companies entered into agreements in which they agreed not to solicit each other’s highly skilled technical employees in violation of antitrust law. In the wake of that complaint, we recommended paying particular attention to any no-hire agreements to make sure that they do not draw unwanted scrutiny from the Department of Justice.

More than 18 months later, some of those companies continue to experience the negative ramifications of that attention. … Continue Reading

The Business of Protecting Customer Relationships

In an article appearing in the January 25, 2012 edition of www.law360.com, Peter L. Altieri and David J. Clark discuss how — over a dozen years after the New York Court of Appeals specifically recognized, in BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d 854 (1999), that an employer may have a legitimate and protectable business interest in preventing former employees from exploiting or appropriating the relationships and goodwill of its customers which had been created and maintained at the employer’s expense — some New York courts still appear to be reluctant to uphold contractual provisions in employment … Continue Reading

New York Court Finds Damage to Reputation of Commercial Insurance Broker Constitutes Irreparable Harm and Bars Solicitation of Broker’s Clients and Employees

In an exhaustive opinion, dated December 21, 2011, in the case Aon Risk Services, Northeast v. Cusack, Index No. 651673/11, 2011 WL 6955890, Justice Bernard Fried of the Supreme Court of New York, New York County, awarded a preliminary injunction sought by Plaintiffs Aon Risk Services, Northeast and Aon Corporation (collectively, “Aon”) against Aon’s former employee Michael Cusack and its competitor Alliant Insurance Services, Inc. (“Alliant”).

The case arose from a raid upon Aon’s business by Mr. Cusack, a senior executive and Managing Director at Aon, who resigned with several other senior executives on June 13, 2011 to join Alliant. That … Continue Reading

New York Court Enforces 60-Day Notice Provision After Original 60-Day Period Already Elapsed

In a recent decision in the matter Alliance Bernstein, L.P. v. William Clements, the Supreme Court of the State of New York, New York County (Justice Louis B. York), enjoined a former employee of AllianceBernstein, L.P. (“AllianceBernstein”) from working for a competitor for 60 days, pursuant to a provision in an agreement requiring the individual to provide 60 days notice of his intention to resign. Although the original 60 days extending from the date of his resignation had already elapsed, the Court in effect granted a new 60 day period of non-competition, because the individual had started working for the … Continue Reading

DOJ Pursues Antitrust Claims Against Companies That Agree With Competitors Not to Recruit One Another’s Employees

In an article published in yesterday’s New York Law Journal (December 22, 2010, New York Law Journal, p.4 (col. 4), Nonhire Agreements as Antitrust Violations), we discuss a complaint filed in September 2010 by the Department of Justice (“DOJ”) against Adobe Systems, Inc., Apple Inc., Google Inc., Intel Corporation, Intuit, Inc., and Pixar, which alleges that those companies entered into various bilateral agreements in which they agreed not to actively solicit each other’s highly skilled technical employees, and that those agreements violated Section 1 of the Sherman Act, 15 U.S.C. § 1. Calling such agreements “facially anticompetitive,” the DOJ alleged … Continue Reading

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