Can a “Friend Request,” a “Like,” or a New Job Announcement on LinkedIn Violate A Non-Solicitation Agreement?

linkedin-new-job-announcement

The growth of social media has been raising complex new issues for employers seeking to enforce their non-compete and non-solicitation agreements. For example, if a former employee connects with a company client or a former coworker on LinkedIn, can such connection result in a breach of the employee’s non-solicitation agreement? What if an employee announces on his LinkedIn profile that s/he has a joined a competitor and invites all the followers – many of whom are the former employer’s customers – to check out the new employer’s website? Could that be a violation of that employee’s customer non-solicitation agreement? 

The courts around the country have been grappling with these issues in the recent years and are yet to come up with a bright line rule.  However, they all seem to agree that the more “passive” the social media activity is, the less likely it is to constitute a prohibited solicitation of customers or employees, and the more “active” the posts are or the more akin they are to oral solicitations, the more likely they are to violate non-solicitation restrictions. In this post, I take a closer look at the various decisions from across the country and synthesize common themes. 

1. Employees’ posts about starting a competing business or advertising job openings at their new place of employment on public social media pages. 

In H&R Block Tax Servs., LLC v. Frias, a former H&R Block franchisee promoted his tax services business on a publicly available Facebook page.  No. 4:18-00053-CV-RK, 2018 U.S. Dist. LEXIS 25667 (W.D. Mo. Feb. 16, 2018). 

H&R Block argued that the Facebook posts were made with the intent of soliciting and influencing former H&R Block customers to visit Defendant’s new tax business. The vast majority of Defendant’s Facebook friends were his former H&R Block clients.  Many of the people who “liked” the post and commented on it were H&R block clients from the Defendant’s client list. Thus, H&R Block argued that posting to friends, who were former clients, was akin to sending them a direct message about Defendant’s new business. Moreover, Defendant actively engaged with H&R clients who commented on his post by telling them to call him.

Defendant argued that his posts on Facebook were just an electronic version of an actual physical sign stating “tax preparation,” which H&R Block had admitted would not be a breach of the non-solicitation agreement. 

The court did not buy H&R’s argument and denied the portion of the preliminary injunction application that sought to prohibit Defendant from posting on social media, requiring additional briefing from the parties on whether Facebook posts were “solicitations” under the Franchise Lease Agreement with H&R Block.  The case was subsequently resolved without the briefing. 

Similarly, in Enhanced Network Solutions Group, Inc. v. Hypersonic Technologies Corp., a subcontractor posted an open position for an outside sales representative on LinkedIn, which could be viewed by the members of a certain group, which included employees of a general contractor. 951 N.E.2d 265 (Ind. Ct. App. 2011).  The general contractor argued that the subcontractor’s post of an open position in a public group within LinkedIn violated the sub’s non-solicitation clause with the general contractor.  The court ruled that the post itself was not a solicitation even though it resulted in a particular employee contacting the subcontractor about the position: 

“The record clearly supports that Dobson made the initial contact with Hypersonic after reading the job posting on a publicly available portal of LinkedIn. In other words, Dobson solicited Hypersonic . . . . Pursuant to the terms of the Agreement, Hypersonic cannot solicit applications but the language does not prohibit Hypersonic from receiving applications from [general contractor’s] employees.”

2. Employees’ announcements of open job positions or advertising of their competing services in private groups where customers or employees are likely to see them. 

In Pre-Paid Legal Services, Inc. v. Cahill, the employer argued that a former employee’s posts providing general information about his new employer in several private Facebook groups that some of his former colleagues visited and posts about events related to his new employer on his personal Facebook page violated his non-solicitation agreement. 924 F. Supp. 2d 1281 (E.D. Okla. 2013).   Specifically, the plaintiff argued that the defendant’s posts about his new employer were meant to solicit his former co-workers to work at the defendant’s new place of employment because the defendant knew that his Facebook “friends” would see his posts. 

The court ruled in favor of the employee, finding that the posts on his publicly available page touting the benefits of his new employer’s products and his professional satisfaction with his new employer and postings in private groups which could be seen his former co-workers did not violate the employee non-solicitation agreement.   The court noted that: “[t]here was no evidence presented that Defendant’s Facebook posts have resulted in the departure of a single PPLSI associate, nor was there any evidence indicating that Defendant is targeting PPLSI sales associates by posting directly on their walls or through private messaging.”

3. Employees’ announcements of open job positions or advertising of their competing services on their own social media pages which their former customers and co-workers are likely to see. 

In Banker’s Life & Cas. Co. v. Am. Senior Benefits LLC, a former employee posted on his own profile a job opening at his new company and then sent connection requests to several employees at his former company, who would be able to see the job posting on his profile page after they had accepted his connection request. 83 N.E.3d 1085 (Ill App. (1st) (2017).  The court found that his activities did not violate the non-solicitation clause and explained it as follows: 

The generic e-mails [inviting connection from co-workers] did not contain any discussion of Bankers Life, no mention of ASB, no suggestion that the recipient view a job description on Gelineau’s profile page, and no solicitation to leave their place of employment and join ASB. Instead, the e-mails contained the request to form a professional networking connection. Upon receiving the e-mails, the Bankers Life employees had the option of responding to the LinkedIn requests to connect. If they did connect with Gelineau, the next steps, whether to click on Gelineau’s profile or to access a job posting on Gelineau’s LinkedIn page, were all actions for which Gelineau could not be held responsible. Furthermore, Gelineau’s post of a job opening with ASB on his public LinkedIn portal did not constitute an inducement or solicitation in violation of his noncompetition agreement.”

Similarly, in Eva Scrivo Fifth Ave., Inc. v. Rush, a hairstylist announced on her own Instagram page that she had joined a competing business.  No. 656723/2016, 2017 N.Y. Misc. LEXIS 3075, 2017 NY Slip Op 31699(U), ¶ 12 (Sup. Ct., NY County Aug. 9, 2017) (Slip. Op.).  The former employer argued that her post violated the customer non-solicitation clause because the hair stylist had 94 clients as her Instagram followers, and, therefore, her Instagram posts announcing her new salon were solicitations of such clients.

The hair stylist argued that her Instagram announcement was the “industry standard,” her profile was public so anyone could see or “like” her posts, and she did not solicit salon clients to follow or like her Instagram account.  In her post, she made the following announcement: 

HI ALL MY BEAUTIFUL PEOPLE! I’m proud to announce that I am officially opening my book at Marie Robinson this Tuesday NOV 1st! I’m so excited to be joining such a wonderful team and couldn’t be happier.  I hope you will all join me at the new spot for a step up in luxury and al [sic] around cooler vibes! Thank you for the support! Inbox me or email … or call and book apt today with info in bio! CAN’T WAIT!

The court denied a preliminary injunction against the hair stylist and noted that “questions remain[ed] about whether [the hair stylist] engaged in any active solicitation” when she made the two Instagram posts in question and that this issue would have to be resolved at trial. In reaching that decision, the Court pointed to two factors: (1) that the hair stylist “advertised” her new job without referencing her old employer and (2) the only persons who received the information on Instagram were those who pro-actively and voluntarily followed the stylist’s personal Instagram site, only some of whom may have been her former clients.

However,  a district court in Minnesota in Mobile Mini, Inc. v. Vevea reached a different conclusions when it reviewed similar posts by an employee announcing on his page that he had moved to a competitor and encouraging customers to contact him about the new products.  No. 17-1684 (JRT/KMM), 2017 U.S. Dist. LEXIS 116235, at *13-14 (D. Minn. July 25, 2017). 

In this case, a former employee – a sales representation for a portable storage company violated – posted the following messages on LinkedIn six months after she had left Plaintiff’s employment:

I’m excited to have joined the City-Cargo Sales Team! We lease and sell clean, safe, and solid storage containers and offices.  We are locally owned and operated, with local live voice answer.  We offer same day delivery to the Metro, and have consistent rental rates with true monthly billing. Give me a call today for a quote. 651-295-2982, and 

Call me today for a storage container quote from the cleanest, newest, safest and best container fleet in the State of Minnesota.  Let’s connect! 651-295-2982.

The former employer argued that the defendant’s LinkedIn posts were visible to her 500-plus connections, including one or more of the employer’s customers, and at least some, if not all, of these connections may have received an email notification about the new posts. The employer also pointed out to the court that when the defendant worked for the plaintiff, her branch manager specifically discussed using LinkedIn to advertise the company’s products and services. 

The Court granted the plaintiff’s request for a preliminary injunction against the defendant explaining it decision as follows: “Instead of merely announcing a job change, the language of the posts here demonstrates that Vevea’s purpose was to entice members of Vevea’s network to call her for the purpose of making sales in her new position at Citi-Cargo.”

4. “Friending” of customers after leaving employment. 

In Invidia, LLC v. DiFonzo,  a hair salon owner argued that a hair stylist violated non-competition and customer non-solicitation covenants in her employment agreement when she made a “public announcement” on her Facebook page, noting her new employment and “friended” at least eight clients of Plaintiff after she began working at the new hair salon. No. MICV20123798H, 2012 Mass. Super. LEXIS 273, 2012 WL 5576406 (Mass. Super. Ct. Oct. 22, 2012).  The defendant argued that being Facebook friends with customers did not qualify as a solicitation of such customers.  The plaintiff argued that Facebook was a significant channel of communication between plaintiff and its customers and the defendant’s posts meant to reach those customers.

The court ruled in favor of the hairstylist and explained its reasoning as follows: “[O]ne can be Facebook friends with other without soliciting those friends to change hair salons, and Invidia presented no evidence of any communications, through Facebook or otherwise, through which Ms. DiFonzo has suggested to these Facebook friends that they should take their business to her [new place of employment].”

5. Social media posts inviting the readers to check out the new employer’s website. 

In BTS USA, Inc. v. Executive Perspectives, LLC, a webpage designer, updated his LinkedIn account to reflect his new job after he had joined a competitor and authored a post  encouraging his contacts to “check out” his new employer’s website.  No. X10CV116010685, 2014 Conn. Super. LEXIS 2644, 2014 WL 6804545 (Conn. Super. Ct. Oct. 16, 2014) (unpublished order). His former employer filed a lawsuit alleging that the defendant’s LinkedIn activities violated the non-solicitation clause in his employment agreement.

The court rejected the employer’s argument nothing in the employee’s employment agreement with his former employer prohibited him from using social media and that “[i]t would be difficult indeed to find liability for such incidental contacts, when the parties to whom they are directed can choose to receive them or not.”  The court further emphasized the importance of addressing social-media solicitation prohibitions in employment agreements:

The court notes that the use of social media, whether it is Facebook, LinkedIn, Twitter, or some other forum, has become embedded in our social fabric.  Absent an explicit provision in an employment contract which governs, restricts or addresses an ex-employee’s use of such media, the court would be hard pressed to read the types of restrictions urged here, under these circumstances, into the agreement. Indeed, such an expansive interpretation of the employment contract would likely render it unenforceable as overly broad.

6. Announcements by sellers of their companies about their new competing businesses. 

As a general rule, the courts are more inclined to enforce non-compete and non-solicitation restraints that accompany a sale of a business (as opposed to an employment agreement).  In Coface Collections N. Am. Inc. v. Newton,the court entered a preliminary injunction enforcing non-compete and non-solicitation clauses in the asset purchase agreement and prohibiting the seller of the business from posting on LinkedIn about a competing business he formed subsequent to the sale. 430 F. App’x 162, 164-5 (3d Cir. 2011)

In this case, the seller of the company agreed to a non-compete and non-solicit covenants with the buyer, but formed and began operating a new company prior to the covenants’ expiration. He updated his LinkedIn profile with his position at a newly-formed competing business, and posted on Facebook to announce that his “non-compete ends on 12/31/2010″ and “I have decided that the USA needs another excellent, employee oriented Commercial Collection Agency,” and invited “experienced professionals” to apply for a job.  He also sent friend requests on Facebook to current employees of the new owner of the company, asking to view the posted notice of job openings at his competing business.  The court found that such activities violated his restrictive covenants with the buyer of his previous company. 

Similarly, in Joseph v. O’Laughlin, after defendant sold his veterinary clinic to plaintiff and agreed to a non-competition and non-solicitation covenants, he formed a limited liability company with named “O’Laughlin Veterinary Services,” created a Facebook page, and posted a link that advised followers that the clinic was “coming soon” and, when activated, directed users to the business’s location on a map. 175 A.3d 1105, 2017 Pa. Super. Unpub. LEXIS 3191 (Pa. Super. Ct. 2017).  Although the defendant argued that his Facebook post about the clinic “coming soon” and announcement of its location was merely “preparatory,” the court entered a permanent injunction prohibiting him from operating a veterinary clinic within the non-compete radius and engaging in any activity that would violate the asset purchase agreement.  Notably, the Court explained its ruling as follows: 

“Upon review of the [fifty-six page exhibit that memorialized the three-month of entries on the Facebook page], it is obvious that, collectively, the posts, “coming soon” announcement, and map directions, are tantamount to a solicitation of [] clients in contravention of the non-compete clause. . . . There is but one reason for O’Laughlin to create the O’Laughlin Veterinary Services Facebook page and maintain contact with former clients: to solicit their business.”3

BOTTOM LINE:   Employers who are concerned about their employees’ ability to solicit customers or employees on social media after they leave should write express prohibitions on such activities into their non-compete and non-solicitation agreements and explain and define how and when the restraints will apply.  Absent such express language, the courts are not likely to enforce non-solicit or non-compete clauses absent aggravating circumstances such as repeated and aggressive client solicitation, social media posts aimed solely at the customers of the business, or a combination of social media posts with other evidence of direct and in-person customer or employee solicitation. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

The Fifth Circuit Rules Industry-Wide Noncompete Agreements Are Not Enforceable

static1.squarespace.comThe Fifth Circuit Court of Appeals recently considered whether a travel agency’s noncompete agreement with its employee was enforceable under Texas law.  It concluded that because the agreement did not have geographic limits, was not limited to the travel agency’s customers with whom the employee actually worked during her employment, and included the entire travel agency industry, the noncompete was unenforceable.

In analyzing the noncompete clause, the court in Karen D’Onofrio v. Vacation Publications, Inc., provided a useful refresher as to what types of noncompete agreements are legal in Texas and what types are illegal and, therefore, not enforceable.   The court confirmed that noncompete restraints that preclude employees from working in any capacity in a particular industry are not enforceable. Thus, when it comes to noncompete agreements, bigger is not always better.

What covenants not to compete are legal in Texas?

First of all, Texas law recognizes that reasonable covenants not to compete serve the legitimate business interest of preventing departing employees from “using the business contacts and rapport established” during their employment to take the employer’s clients with them when they leave.

Thus, a covenant not to compete is enforceable under Texas law if it is “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”  Tex. Bus. & Com. Code § 15.50(a).

In the case of personal services occupations, such as sales persons, the employer has the burden of showing the reasonableness of its noncompete agreement.  Thus, for example, an employer who is asking a court to enforce a 20-mile covenant not to compete, will have to establish why the 20-mile – as opposed to a 10-mile – radius is reasonable.

What types of covenants not to compete are illegal in Texas?

As a general rule, under Texas law, covenants not to compete that extend to clients with whom the employee had no dealings during his or her employment or amount to industry-wide exclusions are overbroad and unreasonable and will not be enforced by the Texas courts.  Similarly, the absence of a geographical restriction will generally render a covenant not to compete unreasonable and, therefore, unenforceable.

Was D’Onofrio’s covenant not to compete enforceable?

D’Onofrio’s noncompete agreement prohibited her — for a period of 18 months after her employment with the travel agency — from, among other things, working “in any capacity” for “any direct or indirect competitor of [the travel agency] in any job related to sales or marketing of cruises, escorted or independent tours, river cruises, safaris, or resort stays” or doing any business with “any person or entity” who had purchased a cruise or other travel product from the travel agency in the preceding 3 years.

According to the court of appeals, this covenant amounted to an industry-wide restriction, which prevented D’Onofrio from working in any job related to the sales or marketing of not just cruises, but also a host of other travel products—and was not limited as to either geography or clients with whom D’Onofrio actually worked during her employment.  Therefore, the Fifth Circuit Court of Appeals concluded that D’Onofrio’s covenant not to compete with her travel agency was unreasonable as written.

When a Texas court finds a noncompete agreement unenforceable, what does that mean for the employer?

If a court determines that a covenant not to compete does not contain reasonable time, geography, and scope limitations, but is otherwise enforceable, then the court shall reform, i.e. rewrite, the noncompete agreement to make it reasonable.  For example, a court can change a 50-mile radius in a non-compete agreement to a 20-mile radius or change an 18-month restriction to a 6-month restriction.  

Texas Bar Association Top TenBOTTOM LINE: In the D’Onofrio case, the court of appeals sent the case back to the lower court directing it to rewrite the agreement.   Texas employers should be aware that any time a court has to rewrite a noncompete because it is overbroad and unreasonable, there are negative consequences for the employer – more attorney’s fees, more time spent in litigation, and an inability to recover damages from the employee.  

Therefore, it is important to make sure that noncompete agreements are written properly from the beginning rather than rely on the courts’ ability to rewrite them during litigation.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

Special Rules for Non-Solicitation Agreements in the Financial Services Industry

2776The financial services industry has its own set of rules when it comes to enforcement of non-solicitation agreements.  In 2004, a handful of the largest financial firms signed a document called Protocol for Broker RecruitingSince then, over a 1,000 firms became signatories to the Protocol, agreeing to abide by the rules that are meant to curtail non-solicitation litigation among competing firms.  For those firms that are signatories (and many are not), as long as the departing broker follows the procedure laid out in the Protocol, s/he and the new employer are safe from being sued for violation of the broker’s non-solicitation agreement. However, the Protocol’s safe harbor only applies if the broker moves between two Protocol signatories. The first question is whether the companies involved are Protocol signatories.

Under the Protocol, a broker transitioning between signatory firms may take only the following information:  (1) client name, (2) address, (3) phone number, (4) email address, and (5) account title of the clients that they serviced while at the firm. Broker’s clients are only those companies and individuals to whom the broker provided services for which he would have received commission. A broker is prohibited from taking any other information or documents than the ones specifically listed in the Protocol. The second question is whether the broker took any information beyond what is allowed under the Protocol.

Furthermore, a broker must resign in writing, deliver the resignation to local branch management, and include with the resignation letter a copy of the client information that will be taken, including account numbers.  The broker’s compliance with the Protocol does not have to be perfect. S/he simply must show “substantial” and “good faith” compliance with the requirements.  The third question is whether the broker’s compliance was in good faith

To be in compliance with the Protocol, the broker may not start soliciting clients to move to the new firm while the broker is still engaged with the old firm while he is planning to move.  A broker also may not share client information at the new firm for solicitation by other brokers. The Protocol also does not protect corporate raiding, i.e. one firm poaching a group of employees or another firm’s entire branch.  The fourth question is whether the broker violated any of the express prohibitions of the Protocol

Finally, although a firm that is deciding whether to bring a suit against a former broker or a competitor firm must consider whether the Protocol applies, it should also analyze a variety of state and federal law claims that may be applicable in such a situation.  In particular, non-compete agreements and non-disclosure agreements may provide independent bases for enforcement even if the non-solicitation restraints are neutralized under the Protocol. Trade secrets misappropriation under the state or federal statutes as well as breaches of common law duties of loyalty may also be implicated. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Federal Government Warns That Anti-Poaching and Wage-Fixing Agreements May Violate Antitrust Laws. What Does This Mean for Texas Companies?

dojThe Department of Justice (DOJ) and Federal Trade Commission (FTC) recently issued Antitrust Guidance for HR Professionals (“Guidance”) intended to alert professionals involved in hiring and compensation decisions to potential violations of the antitrust laws.

This Guidance is the result of the infamous wage-fixing anti-poaching agreement among Ebay, Google, Apple, and other heavy-weights of the tech industry, which came to light in 2010 during the DOJ investigation and a civil class action involving 64,000 employees of such companies that settled in September of last year.

You can find the full text here, but the Guidance can be boiled down to the following simple rules for HR professionals:

  • companies that compete for employees are competitors regardless of whether they sell the same products or provide the same services
  • it is unlawful for competitors to agree not to compete with each other
  • therefore, companies may not agree – expressly or implicitly, in writing or orally – not to poach each other’s employees or to cap salaries or benefits of their employees
  • specifically, HR professionals are “likely” breaking the anti-trust laws if they:
    • agree with individuals at another company about employee salary or other terms of compensation, either at a specific level or within a range (wage-fixing agreement), or
    • agree with individuals at another company to refuse to solicit or hire that other company’s employees (“no poaching” agreements)
  • HR professionals should avoid sharing sensitive information with competitors as it could serve as evidence of an implicit illegal agreement (especially where it causes companies to match each other’s arrangement)

What are the consequences of violating the anti-trust rules?  The DOJ and/or FTC may bring a felony criminal prosecution against individuals involved in anti-poaching or wage-fixing agreements, the company, or both. Additionally, individual employees may bring a civil suit for three times the damages they suffered.

Takeaway for HR Professionals: We all know that price-fixing for goods is illegal, i.e., competing companies cannot get together and agree to charge consumers a certain price for certain goods in the market.  The Guidance makes it clear that agreeing on wages for employees is just as illegal and will be prosecuted.

What does this mean for Texas companies in terms of non-compete agreements?  The companies may still enter into such agreements with their employees (as long as they comply with the Texas Covenants not to Compete Act).  However, they cannot agree with other competing companies on the terms of such non-compete agreements. For example, Companies A and B, which are competing for the same employees, cannot enter into an agreement that they both will tie up their employees with no less than a 2-year, 30-mile non-compete agreement, or that the non-compete specifically will prohibit employees from working for Company A (if they worked for Company B), and vice versa. When in doubt about the legality of your particular agreement, seek legal counsel.

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

 

A Texas Company Loses a Non-Compete Battle Against California Employees

Texas-vs-CaliforniaCalifornia and Texas differ in many respects, including how they treat non-compete agreements.  While Texas enforces non-compete restraints that are reasonable, California has declared such agreements unenforceable.  Recently, a company headquartered in Texas attempted to enforce its non-compete agreements against two California employees.  The agreements specifically stated that they “shall be governed and construed in accordance with the substantive laws of the State of Texas,” that the company is based in Irving, Texas, and that the agreements are to be partially performed in in Irving, Texas. Despite this language, the trial court and then the Dallas Court of Appeals applied California law and ruled the agreements unenforceable in Merritt, Hawkins & Associates, LLC v. Caporicci, et al.

The Court of Appeals explained that in a situation like this, where two states have a relationship with the parties and the transaction, i.e., employment, it will apply the law of the state that has “clearly more significant” relationship to the parties and the transaction. The court then concluded that the relationship to California was more significant than to Texas because: (1) both men interviewed for the jobs in California; (2) completed their employment agreements and the jobs in California; (3) the employees lived in California and traveled to Texas infrequently; and (4) the gist of their employment agreements was performance of services in California.

The Court of Appeals also looked at whether California or Texas had a “materially greater interest” in determining whether the non-compete agreements were enforceable.  Although the company was based in Texas, the two employees performed services in California, and after they left the company, it had to close its California offices.  Based on these facts, the Court of Appeals concluded that while Texas shared a general interest in “protecting the justifiable expectations of entities doing business in several states, that [did] not outweigh California’s interests in this case.”

Finally, the Court of Appeals concluded that the enforcement of the non-compete agreements would be contrary to a “fundamental policy of California,” which was the final nail in the coffin of the company’s argument that the agreements should be enforced under Texas law.

Takeway:  Although a company may state in its employment agreement that the law of a certain state will apply, Texas courts may choose to apply the law of another state if that state has a more significant relationship with the parties or the employment agreements.  The legal analysis depends on a multitude of factors and will vary depending on where the company is located, where its employees are located, what their job functions are, as well as the public policy of the other states in question.  Texas companies that have employees in other states should keep that in mind when hiring or recruiting executives in other states.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Is Donald Trump Crossing the Line with Non-Competes for Volunteers?

ddDonald Trump has been criticized for everything under the sun – from having small hands to being racist. However, the most recent critique surrounds Trump’s campaign volunteer agreements that contain strict non-compete, non-solicitation and non-disparagement clauses. Several media outlets have questioned whether such agreements would be enforceable in court.  

According to the Daily Dot, which claims to have obtained a copy of these six-page volunteer agreements, such documents  contain the following restraints:

No Disparagement.  During the term of your service and all times thereafter you hereby promise and agree not to demean or disparage publicly the Company, Mr. Trump, and Trump Company, any Family member, or any Family Member Company or any asset any of the foregoing own, or product or services any of the foregoing offer, in each case by or in any of the Restricted Means and Contexts and to prevent your employees from doing so.

No Competitive Services. Until the Non-Compete Cutoff Date you promise and agree not to assist or counsel, directly or indirectly, for compensation or as a volunteer, any person that is a candidate or exploring candidacy for President of the United States other than Mr. Trump and to prevent your employees from doing so.

No Competitive Solicitation.  Until the Non-Solicitation Cutoff Date you promise and agree not to hire or solicit or hiring, or assist any other person, entity or organization to have or solicit for hiring, any person that is an independent contractor of, employee of an independent contractor of, or employee of Company or any other Trump Person and who at any time provides services for the project or objective for which you or your employer, as applicable, are being hired.

So, could these restraints be enforceable? Without knowing which state’s law applies to the agreement, it’s impossible to say for sure.  However, under Texas law, these restraints could be enforceable.  You are probably wondering how is that even possible. Here’s how. 

First, under the Texas Covenants not to Compete Act, a non-compete clause must be ancillary to an “otherwise enforceable agreement.”  If Trump’s volunteer agreements contain a confidentiality clause and he shares confidential information with the campaign volunteers, then any non-compete and non-solicitation restraints are ancillary to the confidentiality agreement.  Thus – no different from a typical employer-employee agreement – if Trump’s volunteers get confidential information related to his campaign, he can demand that they may not compete with him.

Second, under Texas Covenants not to Compete Act, the non-compete restraints must have “reasonable” geographic area, time, and scope of activity limits. Since the presidential campaign spans the entire country, a nationwide non-compete area is arguably reasonable.  The time limit could be reasonable depending on what is the “Non-Compete Cutoff Date.” In this case, it would have to be tied to the current elections cycle.  Finally, the scope of activity restraint could be reasonable depending on what tasks a particular volunteer performed for Trump’s campaign.  If his tasks included bringing coffee and making copies, then a non-compete would that prohibits him from working in any capacity for another candidate would not  be enforceable.  However, if a particular volunteer organized rallies, participated in the campaign strategy or polling, or was engaged at a high-level within Trump’s campaign, then the non-compete’s scope could be upheld as “reasonable.”

Takeway: Many employees firmly believe that non-compete agreements are not enforceable. It doesn’t help that many internet sources use words like “right to work” or “right to compete” that mislead employees into believing that they have certain rights that their employment contracts cannot trump. That is not true.  Employers also often err in thinking that the broader their non-compete agreements are, the better off they’ll be when the time comes to enforce them.  This is also not true as this approach may backfire in those states like Texas where non-compete statutes have built-in mechanisms that punish employers for having overboard non-competes.  Thus, both employees and companies should have their non-compete agreements reviewed and/or drafted by lawyers familiar with non-compete law in their particular state before such agreements become a subject of a heated dispute.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Enforcing Texas Non-Compete Agreements Against Employees in Other States

noncompeteFor Texas companies, enforcing non-compete agreements in other states can be tricky since each state has its own rules about what makes a non-compete enforceable, and some states do not allow them at all. Therefore, any Texas company with out-of-state employees should ask two questions about its employees’ non-compete obligations: (1) are my remote employees’ non-compete agreements enforceable? and (2) will I be able to enforce them in a Texas court if necessary?  I have previously written regarding Question 1 here and here, and recently a Texas Court of Appeals addressed Question 2.

In that case, a Texas company sued its Louisiana employee for breach of his non-compete and non-solicitation clauses, breach of fiduciary duty by using the company’s confidential information to compete with it, and tortious interference with the company’s existing business relationships. The company sued the employee in Texas, and he alleged that Texas courts had no jurisdiction (power) over him because he worked entirely from Louisiana, solicited business in Louisiana, and used the company’s confidential information in Louisiana.  In short, other than being employed by a company based in Texas, he did not have any contacts with that state so he could not be dragged into a lawsuit in Texas.

The Court of Appeals found that Texas courts had jurisdiction over the employee to decide the breach of contract/non-compete claim because he originally called the company’s president in Texas to solicit employment with the company, thus purposefully availing himself of the Texas forum. This contact was enough to subject him to the jurisdiction of Texas courts. However, Texas courts did not have the power to decide other claims brought by the employer because those claims arose out of the employee’s conduct that took place entirely in Louisiana.  

TAKEAWAY:  Texas companies that have employees in other states need to make sure both – that their non-compete agreements are enforceable in those states and that they can enforce those agreements in Texas courts.  Some of this can be achieved via contractual provisions in employment agreements, and some can be done via hiring, training, and other corporate policies that affect remote employees.  

Any Texas business that is planning on expanding outside of Texas in 2016, should conduct an audit of its non-compete agreements and employment practices to ensure that they are properly set up so that the company can enforce the agreements in Texas courts.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

In Texas, Non-Compete Agreements Without Time Limit Are Unenforceable

Earlier this week, the Dallas Courts of Appeals sided with an employee in Richard P. Dale, Jr., d/b/a Senior Healthcare Consultants v. Hoschar in ruling that her non-competition agreement was unenforceable because it did not contain a reasonable time limitation.

Hoschar, who worked as an insurance sales agent for SHR had the following clause in her independent contractor agreement:

Upon Termination of the Agreement, the Agent shall return to General Agent any and all information and supplies provided to Agent including any and all information and agrees to take no action either directly or indirectly, as an agent, employees, principal, or consultant of any third party or to utilize and [sic] third party, to attempt to replace business with any policyholder by soliciting or offering competing policies of insurance to any policyholder to which Agent sold any policy of insurance pursuant to the terms of this Agreement.  During the bench trial, the trial court held that the non-competition agreement was unenforceable as a matter of law because it did not contain reasonable time and geographic limitations.

SCR argued that the covenant not to compete was reasonable. Hoschar argued the opposite. No other arguments were raised, and the Court of Appeals sided with Hoschar.  It explained that in Texas, Tex. Bus. Com. Code §15.50(a) requires that a covenant not to compete must contain limitations as to time, geographical area, and scope of activity to be retsrained that are reasonable.  The Dallas Court of Appeals and many other Texas courts have previously interpeted Section 15.50 and ruled that a covenant not to compete in an employment agreement that is indefinite in its time limitation is unreasonable and therefore unenforceable as a matter of law.  Neither party challenged the application of Section 15.50 to independent contractors, and, therefore the Court of Appeals applied it to the covenant not to compete at hand here.

At the oral argument, SCR argued that the phrase, “attempt to replace business . . . by soliciting or offering competing policies of insurance,” reasonably limits the restrain on Hoschar to the duration of the current policy held by the insured. Thus, the “replace business” restriction was limited to the current policy held by each policyholder and did not restrict Hoschar from soliciting policyholders after they renewed their coverage.  Hoschar argued that the language of the non-compete agreement did not contain an express exclusion of renewal policies, which policy holders could renew repeatedly for decades, and, therefore, was indefinite as to time and unenforceable.

Having decided that the covenant not to compete was unenforceable because it did not contain a time limitation, the Court of Appeals did not consider whether it also failed to contain reasonable geographic limits.

TAKEAWAY: Non-competition agreements are enforceable only if they contain reasonable time, scope, and geographic limitations (and meet a few other requirements).  A vague, sloppy, one-size-fits-all, or simply an overreaching non-compete, can backfire on an employer when it comes to enforcing the agreement in court.   A non-compete covenant may be clear when the company first begins its business, but it can become less than clear as the company expands or begins to operate new businesses. Updating agreements to make sure that time limits, geographic limits, and the scope of activities restricted under the agreement are clear and reasonable is key to maintaining competitive advantage.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

Defending Non-Compete Agreements in Court – What Evidence Does an Employer Need?

Last week, the Fourteenth Court of Appeals issued a ruling in a case involving a non-compete agreement between a legal services company in Texas and its former marketing director. While the facts and arguments made by the parties were pretty ordinary, the Court’s opinion was instructive regarding what evidence employers and employees might need in these types of cases to sway the court in their favor.

Rodriguez worked as a marketing director for Republic Services– a court reporting, process services, and record retrieval services firm – for six years before she went to work for a competitor. While at Republic Services, her duties included making calls to existing and prospective customers, assisting in the pricing of jobs, and assisting other employees in providing customer service.

Rodriguez’s employment agreement with Republic Services contained the following rather standard non-solicitation and non-competitions clauses:

For a period of twelve (12) months after termination of her employment under and pursuant to this Agreement, whether with or without cause, the Employee will not . . . (ii) approach, contact, cause to be contacted, or communicate with any customer or account, for whom Company performed services at any office where Employee performed any duties during the two years immediately preceding Employee’s termination of employment with Company.

* * *

For a period of twelve (12) months after termination of her employment, under and pursuant to this Agreement, whether with or without cause, the Employee will not (i) solicit, divert, or accept orders for record retrieval, court reporting, and other related services for or on behalf of any individual or firm, from any customer for whom Company performed services at any office where Employee performed any duties for two years immediately preceding Employee’s termination of employment with Company or (ii) own any interest in, be an employee of, be an officer or director of, be a consultant to, or be associated in any way with a competitor of the Company within the county, or counties, where Employee worked while employed hereunder. . . .

After Rodriguez went to work for Cornerstone Reporting, Republic Services sued her and her new employer for breach of employment agreement, tortious interference with prospective business relationships, civil conspiracy, and tortious interference with Rodriguez’s employment relationship (against Cornerstone only).

Rodriguez and Cornerstone filed a partial summary judgment motion and argued that the non-compete covenant was unenforceable as a matter of law for two reasons: (1) it contained an industry-wide restriction, which imposed a greater restraint than necessary to protect the business interests and goodwill of Republic Services; and (2) Republic Services failed to provide adequate consideration to make the non-compete enforceable. The trial court agreed with Rodriguez that the non-compete covenant was unenforceable and dismissed all the claims, but the Court of Appeals reversed.

First, the Court of Appeals reasoned that although Rodriguez claimed that the covenant imposed an industry-wide restriction on her, she “offered no evidence about the industry at issue.” In contrast, Republic Services provided evidence regarding specific companies in Harris County that were not its competitors within the “legal services” or “legal support services” industry and for whom, presumably, Rodriguez could have worked despite the covenant not to compete. Thus, Rodriguez failed to conclusively establish that the covenant was an industry-wide prohibition.

Second, the Court of Appeals found that Republic Services provided evidence of adequate consideration to make the non-compete enforceable. It showed that it gave Rodriguez customer and pricing information, trained her on how to use RB8 software, and gave her access to Republic Services’ goodwill. Interestingly, even though RB8 software is not proprietary to Republic Services and can be bought by any company, the fact that Republic Services trained Rodriguez on such software via webinars was sufficient to support the non-compete covenant. This poses an interesting question of whether providing training on Microsoft Suite, for example, or any number of software programs that are not proprietary to the employer who provided the training, is sufficient in itself to establish an adequate consideration for an enforceable non-compete.

Also interesting is the fact that the Court specifically emphasized that Rodriguez often invited her contacts at various law firms to lunches with her boss at Republic Services, which, according to the Court of Appeals, showed that she was provided and took advantage of the company’s goodwill. The natural question here is whether allowing an employee to use the company’s suite or an expense account to entertain potential clients creates sufficient consideration to support a non-compete restriction.

CONCLUSION: An employer should always be able to explain why and how its geographic restrictions, time restrictions and restrictions on the scope of activity of its former employees are necessary to protect its business interests and goodwill. It should also be able to show why such restrictions are reasonable. Documenting what sort of confidential information, training or goodwill has been shared with a particular employee is key to enforcing non-compete agreements. Also, being able to provide evidence about the industry in which the employer operates, its competitors, and companies that are not in competition, can be crucial to defending non-compete restraints.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.