Lessons I Learned Today 6/4/09 – Non-compete Agreements in Never Never Land

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.


*Motorola Sues Four Former Employees in Massive Alleged Trade Secret Theft With Chinese Connections by Todd 

This article from the Womble Carlyle law firm deals with litigation in which Motorola Inc. named four former software engineers alleging the theft of $600 million in trade secrets with plans to take them to China. One of the defendants was indicted by a federal grand jury on three counts of theft of trade secrets and is facing charges of computer fraud and abuse, misappropriation of trade secrets and breach of fiduciary duty in the lawsuit.

Federal authorities said U.S. customs agents seized sensitive proprietary information from one defendant as she attempted to board a flight to China at O’Hare International Airport. That included more than 1,000 documents, both electronic and paper, belonging to Motorola. Authorities said they also found $30,000 in her luggage. “The release of the classified engineering information on three computer networking products would have cost Motorola $600 million over the next three years, officials said.”


*Risks of Enforcing Noncompetition Agreements – The Former Employee Countersuit by Todd

“Maryland recognizes the tort action for wrongful interference with contractual or business relationships in two general forms: inducing the breach of an existing contract and, more broadly, maliciously or wrongfully interfering with economic or prospective relationships. A cause of action for tortious interference with an existing contract is fairly easy to establish under Maryland law. In order to prove a case for tortious interference with an existing contract, a plaintiff must establish: 1) the existence of a contract between plaintiff and a third party; 2) the defendant’s knowledge of that contract; 3) the defendant’s intentional interference with that contract; 4) a breach of that contract by the third party; and 5) resulting damages caused to the plaintiff by the breach.”

“In order to prevail on a cause of action for tortious interference with prospective advantage, under Maryland law a plaintiff must establish: (1) intentional and willful acts; (2) calculated to cause damage to the plaintiffs in their lawful business; (3) that were done with the unlawful purpose to cause such damage and loss, without right or justifiable cause on the part of the defendants (which constitutes malice); and (4) with actual damage and loss resulting.”

There is well established, long standing law in other states holding that a former employer may be liable if a potential new employer withdraws an offer of employment based on the threat of litigation. In some jurisdictions, the former employer will be liable, but only to the extent that the employer failed to act in good faith and with a reasonable basis to believe that the restrictive covenant was enforceable.

In West Virginia, a former employer may be held liable for tortious interference with prospective relations if the restrictive covenant is unenforceable, even if the employer had a good faith reason to believe that the restrictive covenant or noncompetition agreement was enforceable.

It is “imperative that employers and their counsel consider carefully whether a restrictive covenant or noncompetition agreement is likely to be enforceable before threatening a new employer with a lawsuit if it does not refuse to employ a former employee. Employers that insist on moving forward to interfere with a former employee’s employment, when it is unclear whether the applicable agreement bars that new employment, must be cognizant of the risk that their threat of litigation might well result in a successful tort claim back against them by the employee whose ability to earn a livelihood has been adversely affected.”


* Massachusetts Judge Modifies Injunction – Permits Executive with Noncompete to Work for Hewlett-Packard in Limited Capacity by Todd

“Donatelli … signed a contract with EMC stating that if he left the company, he would wait 12 months before taking a job at a competing firm. Donatelli sought to get out of the contract by filing a lawsuit in California, where HP is headquartered and where courts generally refuse to enforce noncompete agreements. EMC filed a countersuit in Massachusetts, where Superior Court Judge Stephen Neel (my cousin) issued an injunction barring Donatelli from taking the HP job.

His Honor later modified his injunction, allowing Donatelli to work for HP as long as he steers clear of the company’s storage business. “It is not common for a judge to modify an injunction – but it happens.”


* Attracting Top Talent

“In today’s competitive talent marketplace, you need to think about attracting new employees to your business the same way you think about attracting new customers. It’s not enough to just post a job ad anymore – you need to think carefully about how you want to convey the values and unique benefits of your business, and then create consistent messaging that will reach the kinds of people you want to attract. This notion of “employment branding” has become crucial for large and small businesses alike.”

Don’t let submissions go unanswered.

Brush up on your interview skills, and coach your employees who may be interviewing as well.

Tell candidates what you like about them.

Let candidates know if someone else was picked for the job they wanted.


* How to Hire and Retain Good Employees

“Employees are the mechanism by which a business is able to run. If you want your business to run at a high caliber, then those employees need to also be of a high caliber. Having a company with good employees doesn’t just magically happen overnight, though. It requires you to meet their needs at the hiring stage and continually evolve to meet their needs throughout their employment.”

“Getting quality people into your company from the start will set the tone and get things moving in the right direction, which is why the hiring process deserves time, effort and most importantly, careful consideration. In order for you to be able to hire quality people, however, quality people need to apply. The way to attract them is through marketing, which is done in much the same way as you market to customers.”

Here is a simple six-step process to hiring good employees:

  1. Create a detailed ad and job description that accurately reflect the position.
  2. Sift through the resumes.
  3. Perform preliminary phone interviews.
  4. Conduct face-to-face interviews.
  5. Run a background check.
  6. Select the candidate who is the best fit.

Bringing good employees into your company is only half the battle; keeping them there is the other half. Now that you’ve got them, you’re going to have to put a little work into keeping them happy.


* Do You Need Some New Perspectives?

“John W. Gardner, the former Secretary of Health, Education, and Welfare, once said, “‘We are continually faced with a series of great opportunities brilliantly disguised as insoluble problems.'”

“The idea that opportunities are disguised as problems demonstrates how, by looking at a situation in a different way, you can see new possibilities. Creating new perspectives, or frames, can help you think beyond your own experiences and look at things in new and more positive ways, but what kind of perspectives should you consider?”

“Reframing or looking at things from positive perspectives will enable you to overcome your negative thoughts and feelings. It will also help you discover new ways of approaching situations that might have overwhelmed you in the past. Where some people see problems, others see opportunities.”

“Looking at situations from a positive perspective is a good way of turning your problems into opportunities, and a way of making sure that you get the best out of the situations you face.”


What I Think

I think it is hard to maintain a positive perspective if your former employee is breaching his or her agreement with you not to compete. Attracting the top talent is clearly a critical factor in building a successful business. This is most important in smaller or start-up company, since the early personalities often set the stage for the company’s corporate culture and ability to innovate.

Retention of top employee talent is correspondingly important. The term, garbage in – garbage out, is subject to more than one application. Most businesses make a relatively large investment of their resources into the process of recruiting, training, and managing employees. This is particularly important with key employees.

Given what the articles posted on this date suggest, departure of a former employee can have far reaching implications. The Chinese Connections case points out the sorts of things that can happen if the soon to be former key employee decides to take some of the R & D notes or customer lists with them when they leave. This often leads to a situation which is really only good for the lawyers. The employer will loose and the former employee will loose.

One thing that makes this area of non-compete litigation so great for lawyers and so bad for the parties, is the misinformation about what is or is not binding, and the nuances of how these issues are treated in different jurisdictions. In Kentucky, of instance, there are substantial differences in how non-compete cases are treated in the same town, depending upon whether they are brought in federal court or state court.

In New York, some courts have tended to limit the term of enforcement of non-compete agreements to relatively shorter periods than in many other states. In California, where the legislature declared them to be against public policy, the employer can actually be subject to damages and other remedies as a defendant for even engaging in an employment agreement containing a non-compete provision. The Maryland and West Virginia cases outlined in the articles posted on this date simply add to the uncertainty of this area of the law.

Perhaps the New Perspectives article is the way to go on this. It may be time to look at this issue another way, including looking at your retention efforts.


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If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

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Posted in Applied Entrepreneurship, business, Business interruption, crisis, etc., Intellectual property, Law, Unfair competition

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