loss of multiple key employees - prevention and remedies robert j. wood, jr. tuesday, october 7,...
TRANSCRIPT
Loss of Multiple Key Employees - Prevention and Remedies
Robert J. Wood, Jr.Tuesday, October 7, 2008
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THE PROBLEM: MULTIPLE EMPLOYEES LEAVING FOR COMPETITOR
Possible legal remedies against ex-employee and new employer
Preventive measures DISCLAIMER: State laws vary greatly (must know which law governs your situation)
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PREDATORY HIRING CLAIMS
Violation of Sherman Antitrust Act Actual Monopolization (Actual Harm) Attempted Monopolization (Potential Harm)
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ACTUAL MONOPOLIZATION ELEMENTS
D’s possession of monopoly power in relevant market
Willful acquisition of such power Causation
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UNIVERSAL ANALYTICS CASE (9th Cir. 1990) Plaintiff and Defendant in aerospace technology field
Defendant had 90% of market Plaintiff had 5% of market Defendant hired 5 of Plaintiff's key employees
Employees difficult to replace; required two years to train
Court assumed first prong (possession of monopoly power) met
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UNIVERSAL ANALYTICS CASE – Cont.
Second prong: Whether talent hired not for using it but to deprive competitor
Must prove subjective intent to engage in exclusionary conduct
The "we wound UAI again" memo Court = primary motivation was to obtain productive employee
Defendant put the employees to work
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ATTEMPTED MONOPOLIZATION ELEMENTS
Predatory or exclusionary conduct Specific intent to monopolize Dangerous probability of achieving monopoly power
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AMERICAN PROFESSIONAL TESTING CASE (9th Cir. 1997)
Defendant offered BAR/BRI in 46 states Plaintiff competed in 4 states Defendant hired Plaintiff's instructor, "crippled [plaintiff's] effort to compete in Florida"
Monopoly Power = new rivals can't enter market, existing competitors can't expand
Plaintiff = Defendant's high-quality courses = entry barrier
Court = not enough
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EMPLOYEE RAIDING
Claim not widely accepted Hiring to cripple competition rather than to obtain services
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BREACH OF FIDUCIARY DUTY (DUTY OF LOYALTY)
Competing while still employed (bad) Preparing to compete (okay) Possibility of obtaining injunctive relief
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ABETTER CASE (Tex. App. 2003)
Plaintiff owned trucking fleet; Defendant was key employee
Defendant prepared to start competing company Defendant mentioned his plans to Plaintiff's customer
Defendant told Plaintiff about his plans; Plaintiff's other employees inquired
Defendant left; followed by 12 of Plaintiff's other employees
No breach of fiduciary duty
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GRESHAM CASE (Ga. App. 2004)
Defendant revealed plans to start new company to co-employees
Arranged for new employee's 401(k) loan to be re-paid
Other employees simultaneously resigned
Breach of fiduciary duty
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MISAPPROPRIATION OF TRADE SECRETS
Must tighten security/treat information as secret
Secret = not in public domain Secret = not in public domain Customer and pricing information
General knowledge Specific knowledge
Employee may use general skills and knowledge
Inevitable versus threatened disclosure
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TORTIOUS INTERFERENCE VS. NEW EMPLOYER
Departed employee bound by non-compete agreement
Inducing versus merely hiring (with knowledge of non-compete)
Claim based upon hiring at-will employee
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TORTIOUS INTERFERENCE VS. DEPARTED EMPLOYEE
Based upon solicitation of employer’s customers/employees
Difference between tortious interference and fair competition?
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REEVES CASE (Cal. 2004)
Senior partners in law firm Abruptly resigned, left no status reports Destroyed client computer files and documents
Misappropriated confidential information Solicited law firm's clients Cultivated employee discontent Offered jobs to law firm's at-will employees
Tortious interference
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FOOT LOCKER CASE (S.D. Ind. 2006)
Defendant systematically hired Plaintiff's employees
Needed the employees "Hit the competition where it hurts" memo
Court: "Offhand remarks" No tortious interference
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MEMORIAL GARDENS CASE (Colo. 1984)
Plaintiff and Defendant sold preneed funeral contracts
Defendant made random telephone calls Defendant told Plaintiff's customers they could cancel contracts
Defendant completed and mailed cancellation forms
Tortious interference Customers not at-will
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CONSTRUCTION MANAGEMENT (8th Cir. 2002) Defendant = long distance telephone company
Plaintiff = cable inspector for Defendant
Defendant sought bids for cable services Plaintiff chose difference vendor Plaintiff Defendant's inspectors: Seek employment with other companies
No tortious interference
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NON-COMPETE AGREEMENTS
Consideration required Reasonableness of scope Judicial modification No “one size fits all” agreements Need to update agreements Binding incumbent and departing employees Providing (creating) new confidential
information "Stale" information not confidential Choice of Law/Forum Selection provisions California
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NON-SOLICITATION AND NON-DISCLOSURE AGREEMENTS
Non-solicitation versus non-compete agreements
Difficulty of proving "solicitation“ Use of broader terms (e.g., "communication")
Non-disclosure agreements = more enforceable
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PRACTICAL TIPS WHEN EMPLOYEES LEAVE
Exit interviews to determine their intentions
Remind of obligations Confiscate company property Search emails
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AVOIDING RAIDING ACCUSATION
Use job postings Headhunters Obtain copies of agreements signed by prospective employees
Prevent employees bound by non-solicitation provisions from recruiting
Direct new employees to comply with agreements and not disclose information