Loss of Multiple Key Employees Prevention and Remedies

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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

• Ds 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 employers
  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

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DISCLAIMER

• State laws vary greatly
• Must determine law applicable to your situation