Non-Solicit Agreements

In this age of social media, a frequently asked question is whether social media activity can violate a non-compete or non-solicit.   Although the case law is evolving, courts which have addressed the issue have focused on the content of the communication, rather than the medium used to convey it.  In so doing, they have distinguished between mere passive social media activity (e.g., posting an update about a new job) as opposed to more targeted, active actions (e.g., not merely posting about a new job, but also actively recruiting former co-workers or clients).

A “LinkedIn” case recently decided by the Illinois Appellate Court, Bankers Life v. American Senior Benefits, involved conduct which fell between these two extremes: an individual, Gregory P. Gelineau, who was contractually barred from soliciting former co-workers, sent three former co-workers  generic requests to become “connections” via LinkedIn.  The requests did not go further than that, but they were not purely passive in that they sent to specific individuals.  Gelineau’s former employer, Bankers Life, filed suit, accusing him of breaching his non-solicitation obligation.

After surveying decisions from around the country involving various forms of social media activity, the Court explained that the different results reached in these decisions “can be reconciled when looking at the content and the substance of the communications.” Here, the Court noted that the LinkedIn requests sent by Gelineau did not discuss Bankers Life or Gelineau’s new employer, did not suggest that the recipient view Gelineau’s new job description, and did not encourage the recipient to leave Bankers Life and join Gelineau’s new employer.  Rather, they were bare requests to become “connections” on LinkedIn.

The Court held that such bare requests were not the sort of direct, active efforts to recruit which would have been a breach of Gelineau’s contractual non-solicitation clause.

While the facts of Bankers Life fall in between the two extremes of social media activity addressed by other courts, the case ultimately turned on an evaluation of the content of the activity, as opposed to the medium.  This approach is consistent with that taken by courts whenever they are tasked with determining whether particular conduct constitutes an unlawful “solicitation.”

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 one may be neither an exception nor exceptional, but here is a “Top Ten List of Holiday-Related Trade Secret/Non-Compete Cases”:

  1. “It may be better to be naughty than nice”—In Ivy Mar Co., Inc. v. CR Seasons Ltd., 907 F. Supp. 547 (EDNY 1995), the Court denied plaintiff a preliminary injunction in a non-compete/trade secret case in large part because of plaintiff’s months-long delay in bringing the action. This occurred notwithstanding plaintiff’s claim that it only delayed filing the action so as not to ruin Christmas—“they delayed bringing this motion because they feared defendant Jetmax would not ship goods to its customers during the Christmas season,” or so they claimed.
  2. “Or maybe not.”—In Agero Inc. v. Rubin et al., an appellate court in Massachusetts affirmed dismissal of plaintiff’s claims, holding that Agero failed to establish that two of the defendants, Timothy Schneider and Matthew Capozzi, owed Agero a duty of loyalty.  Though the Court when on at some length as to the reasons it had for affirming the result against Agero, what was perhaps most telling was the Court’s taking the time to express a reason that it was not relying on:
    • We need not comment on the defendants’ suggestion that Agero brought this complaint against them, despite Agero’s size and apparent lack of interest in pursuing ViewPoint, to send a message to other Agero employees who might entertain thoughts of leaving and lawfully competing. That Agero reportedly sued Schneider on Christmas Eve, when Schneider’s oldest child was five years old, might lend credence to the charge. However, we do reiterate that noncompetition agreements would be the better practice to achieve that goal. Based on the record before us, Agero’s claims were properly dismissed.
  3. “Check your list twice”—If you think departing employees had accomplices or other help, don’t just add a bunch of John Does to your complaint without defining and describing who those co-conspirators are.  Otherwise you run the risk of having those claims dismissed and those avenues of discovery shut down in your non-compete or trade secret case just as happens in other types of cases, such as Southwest Materials Handling Co. v. Nissan Motor Co., 2000 U.S. Dist. LEXIS 16275 (N.D. Tex. 2000), where the court said, with respect to civil conspiracy allegations against John Doe defendants, that “[t]his Court is not in the position of channeling or divining potential co-conspirators who are presently as tangible as Santa Claus, the Easter [B]unny or the Tooth Fairy.”  I guess the court did not find the testimony of Frank Church credible.
  4. “What is the secret to making a good snowman?”—Though there is now a patent on for an apparatus for facilitating the construction of a snow man/woman out of snow, making snowman holiday decorations has also spawned litigation like the case of  Gemmy Industries Corporation v. Chrisha Creations Limited, Dist. Court, SD New York 2004. In Gemmy, plaintiff claimed that defendant’s marketing of an inflatable snow man, among other causes of action, violated plaintiff’s trade secrets, especially after defendant hired plaintiff’s former sales representative.  But the court concluded that even plaintiff did not treat the snowman and its marketing as involving trade secrets since plaintiff “did not request and [the sales representative] did not execute any non-disclosure agreement, non-compete agreement or confidentiality agreement prior to acting as a sales representative for [plaintiff].”
  5. “‘It was always said of him, that he knew how to keep Christmas well, if any man alive possessed the knowledge.’”—Dickens’ closing words in A Christmas Carol were a celebration of the Christmas spirit, and sharing but not everyone wants to share the knowledge they have about Christmas traditions.  While some have asked, we think tongue in cheek, whether Christmas may be patented, it does appear that at least some aspects of our Christmas traditions can be protected as trade secrets.  In the case of IPI, INC. v. Monaghan, 2008 Ohio 975 (Court of Appeals, 6th Appellate Dist. 2008), an Ohio Court found that plaintiff had stated a claim for relief, and could proceed to trial, on a claim that plaintiff’s unique methods of “‘event’ photography” such as involved in its “Santa Claus programs” could involve protectable trade secrets under the Ohio Trade Secrets Act, where plaintiff had alleged that “it developed, inter alia, ‘confidential and specialized techniques for event photography, a business marketing plan for its franchisees, a training program, and proprietary and confidential software that it makes available to its franchise systems’” and that “appellees/cross-appellants misappropriated these systems, techniques, etc., that is, its alleged trade secrets. If it is shown that these are truly trade secrets and that appellees/cross-appellants misappropriated the same, IPI would be directly injured by that misappropriation.”
    • Not all courts, however, are willing to give litigants credit for the alleged uniqueness of their holiday-related ideas. This can be seen in Oxenhandler v. Dime Sav. Bank of Brooklyn, 33 Misc. 2d 626 (NY Supreme Court 1962), where plaintiff was denied relief in his trade secret/business information claims against the financial institution to which he had suggested “a ‘Chanukah Savings Plan’ which could be made available to [the bank’s] Jewish depositors in the same manner that a Christmas Club had been available to the general public.”  In fact, the Court concluded that “plaintiff’s idea was neither new, novel, original nor concrete,” and that the Court “cannot perceive how plaintiff on any theory in law can succeed in this action.”  New settings for Christmas Savings Clubs faired no better as alleged trade secrets or protectable ideas either, as seen in Moore v. Ford Motor Co., 43 F. 2d 685 (2nd Cir. 1930). There, plaintiff Moore sought to protect the idea of Christmas Club accounts as a way to save for down payments on automobiles.  The Court concluded that there was nothing secret or unique about such a plan, and that “idea was old in Christmas Savings clubs” for some time.
  6. Beware the office Christmas party.”—Normally this is a phrase you see in HR guides, but it can also hold true in the non-compete area of the law as seen in Plastic Surgery Associates Of Kingsport Inc. v. Pastrick, a 2015 decision of the Tennessee Court Of Appeals 2015. In this case, the court held that the defendant was indeed an employee and an owner of the plaintiff medical practice, and subject to the express terms of his employment agreement (including its non-compete provisions) and liable as an owner for a portion of the practice’s debts.  The court rested its conclusions of ownership on three key facts, one of which was that defendant “hosted a Christmas party at his home that was billed to the company.”  Unless that party was epic, it probably would have been cheaper to pay for the punch and appetizers out of his own pocket.  It would have eliminated that troublesome fact and helped him avoid the necessity of disgorging $246,633.00.
  7. Christmas cards, why bother?”—In Vizant Technologies, LLC v. Whitchurch, 97 F. Supp. 3d 618 (ED Pa. 2015), plaintiff brought a ten-count complaint against defendant alleging misappropriation of trade secrets in violation of the Delaware Uniform Trade Secrets Act (“DUTSA”) as well as two violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), breach of contract, defamation, tortious interference with existing and prospective relationships, abuse of process, conversion, fraud, and civil conspiracy. Finding that defendant was using confidential information and otherwise acting tortiously in contacting plaintiff’s (i.e. her former employer’s) employees, officers, and directors, and with their family members, and in interfering with plaintiff’s business with customers.  This resulted in Whitchurch’s being enjoined from carrying through on her stated “intention to send a ‘Christmas card direct mail piece’” out further criticizing Vizant and its principals to that same audience.
  8. New Year’s resolutions should be thought out.”—Many times, employees will decide to leave for new employment after the upcoming holidays pass.  So it was in Alexander & Alexander v. Wohlman, 578 P. 2d 530 (Wash: Court of Appeals, 1st Div. 1978), where “[b]etween Christmas 1975 and New Year’s Day 1976, the defendants decided to leave the employment of A&A.”   The problem was not their resolve to leave, but the things that they did before they left:
    • On Friday afternoon, January 16, 1976, after Mr. Maier, the manager of the Seattle office, had left for the weekend, they submitted their letters of resignation and took with them personal possessions and certain schedule books for use as forms in the conduct of their business. Between January 12 and 16, 1976, each of the defendants personally contacted clients of theirs to inform them of their decision to leave A&A and the formation of the new firm, Wohlman & Sargent, Inc. On January 17 and 19 defendants sent letters to clients requesting broker-of-record letters.
    • The appeals court found that such conduct did violate their legal obligations to A&A, and found them liable for damages.
  9. Sometimes you get coal in your stocking.”—Courts often work through the holidays, despite the general impression to the contrary. For instance, in Direx Israel, Ltd. v. Breakthrough Medical Corp., 952 F. 2d 802 (4th Cir. 1991), plaintiff obtained a preliminary injunction from the District Court against the defendant who, when he was discharged, illegally appropriated and exploited the plaintiffs’ trade secrets, and were using such trade secrets to manufacture, with intent to market, a machine competitive with the plaintiffs’ product.  The 4th Circuit reversed the grant of the preliminary injunction, but did so “without prejudice to the right of the plaintiffs to renew such motion on the basis of any new or additional facts that may have occurred since the grant under review.”  The appellate court’s decision issued on December 24th.  Likewise, in Viad Corp. v. Cordial, 299 F. Supp. 2d 466 (WD Pa. 2003), the Court issued a Christmas Eve denial of a preliminary injunction request in case in which Defendants Cordial and Hellberg were alleged to have violated their employment contracts, which prohibited them from competing with plaintiff directly or indirectly, or aiding its competitors, for a period of one year following the termination of their employment, though in the holiday spirit the Court pointed out that plaintiff and defendants had been “represented by counsel who tried the matter skillfully and efficiently.”
  10. Sometimes, though, you get what you asked for.”—In Devos Ltd. v. Record, Dist. Court, ED New York 2015, on the other hand, the court issued on Christmas Eve a wide ranging injunction against defendants in a trade secret misappropriation and unfair competition case even though the plaintiff had been indicted and had been placed on a federal exclusion list that meant that no federal agency can do business with plaintiff and that any pharmaceutical distributor who receives federal funding, including Medicare and Medicaid (which includes almost every distributor of pharmaceuticals), also cannot do business with plaintiff. Concluding that an indictment was just an accusation of being naughty rather than a finding of same, the court issued the injunction.  There was no mention of where Santa had come out when double checking Devos’ placement on his list.

Happy holidays.

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 topic.

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 determined that while the restrictive covenant at issue was reasonable, there was simply not evidence that the seller had violated it. 

The Court also found that the purchaser’s claim had not violated the general release because that release excluded claims based on the restrictive covenant.  The Court concluded its opinion by pointing out how emotions had needlessly driven the parties into and through litigation: 

“My summary judgment determinations are that neither E.T. nor the Millers prevail on their opposing claims against one another.  What should have been a positive transition in the lives of Mr. Miller and Mr. Blakemore devolved instead into a needless expenditure of resources on dubious legal claims that spawned two years of fruitless litigation.  After all the time, trouble, angst, anger and expense, both sides will go home without a victory.” 

As a result, this case serves as a reminder of how emotions can affect restrictive covenant disputes.

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 his fiduciary duty and his contractual obligations not to recruit employees of the company for a year after he left.

See below to view the episode (the story starts circa 1:30) and read our own Peter Altieri’s blog post about this decision.

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 the overriding difference of treatment of bad leavers versus good leavers.

Michael Valentine, a corporate vice president of Fortinet, Inc., a California based network security company, left for a competitor, Sophos, in the end of 2013.  The arbitrator found that due to his recruiting of several subordinates, both before and after he resigned, he had breached his fiduciary duty as an officer of Fortinet and his contractual obligations not to solicit employees for one year after his employment ended.  Despite Valentine’s affirmative defense that the clause was barred by California’s public policy [see California Business & Professions Code 16-600, et seq. and Edwards v. Arthur Anderson LLP, cf. Loral Corp. v. Moyes], the arbitrator awarded significant damages for his recruitment activity based upon the breach of his fiduciary duties.

While it appears from the Award that much of the evidence of pre-resignation solicitation was purely inferential, the arbitrator viewed the efforts to cover up such evidence, and the sentiment expressed in the email as being a “despicable” act, such that it caused him to find liability for the recruitment of the three subordinates and to award punitive damages on top of both actual damages and general damages.

The arbitrator awarded actual damages, the amount expended to replace the employees based on the time spent by the executive who recruited the replacements, at his hourly equivalent salary rate, or $39,560.  The arbitrator found general damages of $150,000 based on the “intentional tortious breach of fiduciary duty” and attributed that to his sense of a reasonable amount of the loss of valuable employees causing harm to the employer for likely lost business caused by delays in performance and the start-up time for new employees.  Finally, based on Valentine’s willful and intentional breach of his fiduciary obligations causing direct harm to Fortinet, the arbitrator awarded $250,000 in punitive damages and attorneys’ fees pursuant to contract of $1.2 million plus costs, rendering the total Award to be in excess of $1.75 million.

Had Mr. Valentine not spoken with his co-workers about joining him before he resigned, had he not taken steps to cover up such evidence of solicitation, and, most importantly, had he not callously joked about his egregious breach of duty in such a vivid and morbid email, he may have gotten the benefit of California’s public policy disfavoring employee non-solicit agreements.  But when you are a bad leaver, judges and arbitrators are definitely more likely to find breaches of duties and contractual obligations and enforce such provisions to the fullest extent.

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 it restricted the former employee, a wholesale insurance broker of lawyers’ professional liability insurance, from a broader scope of activities than those he engaged in during his employment (i.e., it prohibited him from working with all types of professional liability insurance, not just the type that he actually brokered).

Additionally, the Court held that the geographic scope of the noncompetition agreement (i.e., all 50 states and the territories of the United States) clearly exceeded “that which is necessary to protect ProAccess and Jamison from threats against its business interest” and that such geographic overbreadth imposed “an undue burden” on the employee “by forcing him to work in another country if he wishes to continue earning a living as a wholesale broker specializing in LPLI or any other type of professional liability insurance.”

Finally, the Court noted that the length of the restriction – 28 months – was a “significant period to impose on an employee whose effective term of employment . . . lasted only 20 months.”

Accordingly, the Court held that the noncompetition provision failed to meet the requirements of reasonableness set out in the Illinois Supreme Court’s most recent pronouncement in this area, Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871 (2011).

Turning next to the post-employment, customer non-solicitation provision, the Court likewise found it to be unreasonably overbroad, as it applied to actual and potential customers of the plaintiff entities and of their subsidiaries, regardless of whether they were involved in the same activities as the former employee – and regardless of whether the former employee ever had contact with them while working for ProAccess.

Finally, the Court turned to the contractual confidentiality provision, which “prohibit[ed] the use or disclosure of any ‘information, observations and data (including trade secrets) obtained by [Schmitt] during the course of [his] employment with [Jamison/ProAccess] concerning the business or affairs of [plaintiffs] and their respective Subsidiaries and Affiliates.”  The Court held that this clause was broad enough to cover “ virtually every fact, plan, proposal, data, and opinion that he became aware of during the time he was employed by ProAccess – without regard as to whether such information was in any way proprietary or confidential in nature, or whether he in fact obtained the information through a source outside of his work.  It is patently overbroad.”

Additionally, the Court noted that it “cannot assume that the information Schmitt acquired during his employment with ProAccess resulted solely from plaintiffs’ businesses, as opposed to the customer relationships that he had established prior to his employment.”  The Court emphasized that this confidentiality provision “does not merely restrict the dissemination of confidential information; it drastically limits Schmitt’s ability to work in the insurance industry by preventing him from using any knowledge that he gained while in plaintiffs’ employ, regardless of whether he gained such knowledge, directly or indirectly, as a result of his employment” (emphasis in original).

For good measure, the Court further explained that the confidentiality clause is not saved because of its exception for confidential information that “becomes generally known to and available for use by the public.”  The Court explained that “[t]here is a great deal of information that is not ‘generally’ known to the public; not all of it merits protection under a confidentiality provision.”

Because the Court found these deficiencies to be so significant, it held that they were “too great to permit modification.”  Accordingly, rather than judicially modify or “blue pencil” any of these provisions, the Court struck them down.

Over all, the notion that permeates throughout AssuredPartners is that the restrictions at issue were fundamentally unfair to the individual former employee.

Coming on the heels of the Illinois Appellate Court’s blockbuster decision in Fifield v. Premier Dealer Services, Inc. (in which the same court held that, absent other consideration, two years of employment is required for a restrictive covenant to be deemed supported by adequate consideration – even where the employee signed the restrictive covenant as a condition to his employment offer – and even where the employee voluntarily resigned), AssuredPartners is a reiteration of the degree of judicial scrutiny currently being applied to restrictive covenants in Illinois.

In light of these decisions, Illinois employers are advised to draft as narrowly as possible, to pay particular heed to the consideration provided, to carefully consider choice of law and forum selection provisions, and to review existing restrictive covenants in light of the degree of judicial scrutiny currently being applied.

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 to earn a living and competition—came to a head” recently in dueling state court law suits removed to federal court, and consolidated.  Addressing the impact of choice of law provisions in such agreements and the impact of the public policy of states on the question of the enforceability of such covenants, the Fifth Circuit held that an Oklahoma court could, on public policy grounds, refuse to enforce a Texas choice of law provision that would have supported application of a non-compete provision to employees working in Oklahoma.  But the Court also remanded the matter for a determination of whether a non-solicitation clause would be enforceable under Texas law because Oklahoma public policy would not void a choice of law provision insofar as it required limitations on solicitation.

The decision highlights the need for employers to consider a multitude of factors when dealing with a multi-state employee population.  First, efforts to promote uniformity among employees are not always as simple as choosing the law of a single state to apply to the written agreements containing post-employment restrictions.  Second, all post-employment restrictions are not viewed monolithically under state law, and restrictions on solicitation may survive where broader bans on any competition would not, a particularly important consideration when dealing with an employee population in multiple states.  Third, while choice of law analysis will often cite the multi-factor “most significant relationship test” of Restatement (Second) of Conflict of Laws when deciding choice of law questions, the “place of performance” factors often holds great sway in employment contracts.  These and other factors will drive the enforceability of such covenants, and one must always consider the likelihood of success on the merits factor so critical at the initial injunctive relief stage on which these cases often turn.  An employer often may be better off seeking to enforce narrow non-solicitation or confidentiality obligations than making broader claims to ban all competition.  Counsel that can help an employer assess these state to state differences proves valuable for those with employees in multiple, sometimes disagreeing, jurisdictions.

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 what may constitute reasonable restrictions, the new law provides a dash of certainty in an especially uncertain area of law.  First, it explains that restrictive covenants must be limited to the geographic area where the company operates a similar business.  Second, it also provides certainty about the appropriate temporal limitations.  It says that a temporal restriction of 2 years or less in a run-of-the-mill employee/employer non-compete is presumptively reasonable.  It also says that a temporal restriction of 18 months or less (or for as long as post-separation consideration is paid for that agreement; whichever is longer) in a non-solicitation of customers clause is presumptively reasonable.  Finally, the statute also codifies the concept of equitable modification (sometimes loosely described as blue-penciling) and permits a court to modify restrictions that are over broad or unreasonably long to preserve the protectable interest at issue.

In light of this new law, employers should consider whether any changes are necessary to their restrictive covenants.  However, because the enforceability of restrictive covenants necessarily depends on the circumstances, employers seeking to modify or implement restrictive covenants should consult with an experienced restrictive covenant attorney to determine how best to craft reasonable restrictions under the circumstances.

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 Group v. Marshall-Alan Associates, Index Number 113685/11 (1st Dep’t Aug. 28, 2014).

Knowing what restrictions are in a recruit’s agreement and obtaining sound legal advice about the enforceability thereof enables all the parties involved in the recruiting process to assess, mitigate and avoid the risks attendant to hiring individuals subject to non-compete or other restrictive covenant provisions. Failing to ask or disclose, on the other hand, can potentially expose everyone involved to claims of breach of contract, tortious interference or worse yet, fraud. “Don’t ask, don’t tell” can be a dangerous policy when recruiting executives with employment agreements containing restrictive covenants.