Category: Employment Law

Texas Arbitration Provision Sounds Death Knell For Illinois Salesman’s Suit Against Former Employer – IL ND

(“Isn’t that remarkable…..”)

The Plaintiff in Brne v. Inspired eLearning, 2017 WL 4263995, worked in sales for the corporate publisher defendant.  His employment contract called for arbitration in San Antonio, Texas.

When defendant failed to pay plaintiff his earned commissions, plaintiff sued in Federal court in his home state of Illinois under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 (“IWPCA”). Defendant moved for venue-based dismissal under Rule 12(b)(3)

The Illinois Northern District granted defendant’s motion and required the plaintiff to arbitrate in Texas.  A Rule 12(b)(3) motion is the proper vehicle to dismiss a case filed in the wrong venue. Once a defendant challenges the plaintiff’s venue choice, the burden shifts to the plaintiff to establish it filed in the proper district.  When plaintiff’s chosen venue is improper, the Court “shall dismiss [the case], or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” 28 U.S.C. § 1406(a).

Upholding the Texas arbitration clause, the Illinois Federal court noted the liberal federal policy favoring arbitration agreements except when to do so would violate general contract enforceability rules (e.g. when arbitration agreement is the product of fraud, coercion, duress, etc.)

The Court then turned to plaintiff’s argument that the arbitration agreement was substantively unconscionable.  An agreement is substantively unconscionable where it is so one-sided, it “shocks the conscience” for a court to enforce the terms.

The plaintiff claimed the arbitration agreement’s cost-sharing provision and absence of fee-shifting rendered it substantively unconscionable.

Cost Sharing Provision

Under Texas and Illinois law, a party seeking to invalidate an arbitration agreement on the ground that arbitration is prohibitively expensive must provide individualized evidence to show it will likely be saddled with excessive costs during the course of the arbitration and is financially incapable of meeting those costs.  The fact that sharing arbitration costs might cut in to a plaintiff’s recovery isn’t enough: without specific evidence that clearly demonstrates arbitration is cost-prohibitive, a court will not strike down an arbitration cost-sharing provision as substantively unconscionable.  Since plaintiff failed to offer competent evidence that he was unable to shoulder half of the arbitration costs, his substantive unconscionability argument failed

Fee-Shifting Waiver

The plaintiff’s fee-shifting waiver argument fared better.  Plaintiff asserted  then argued that the arbitration agreement’s provision that each side pays their own fees deprived Plaintiff of his rights under the IWPCA (see above) which, among other things, allows a successful plaintiff to recover her attorneys’ fees. 820 ILCS 115/14.

The Court noted that contractual provisions against fee-shifting are not per se unconscionable and that the party challenging such a term must demonstrate concrete economic harm if it has to pay its own lawyer fees.  The court also noted that both Illinois and Texas courts look favorably on arbitration and that arbitration fee-shifting waivers are unconscionable only when they contradict a statute’s mandatory fee-shifting rights and the statute is central to the arbitrated dispute.

The court analogized the IWPCA to other states’ fee-shifting statutes and found the IWPCA’s attorneys’ fees section integral to the statute’s aim of protecting workers from getting stiffed by their employers.  The court then observed that IWPCA’s attorney’s fees provision encouraged non-breaching employees to pursue their rights against employers.  In view of the importance of the IWPCA’s attorneys’ fees provision, the Court ruled that the arbitration clause’s fee-shifting waiver clashed materially with the IWPCA and was substantively unconscionable.

However, since the arbitration agreement contained a severability clause (i.e. any provisions that were void, could be excised from the arbitration contract), the Court severed the fee-shifting waiver term and enforced the balance of the arbitration agreement.  As a result, plaintiff must still arbitrate against his ex-employer in Texas (and cannot litigate in Illinois).

Afterwords:

This case lies at the confluence of freedom of contract, the strong judicial policy favoring arbitration and when an arbitration clause conflicts with statutory fee-shifting language.  The court nullified the arbitration provision requiring each side to pay its own fees since that term clashed directly with opposing language in the Illinois Wage Payment and Collection Act.  Still, the court enforced the parties’ arbitration agreement – minus the fee provision.

The case also provides a useful synopsis of venue-based motions to dismiss in Federal court.

 

 

 

 

‘Salesy’ LinkedIn Posts Can Violate Ex-Employee’s Noncompete – Minn. Federal Court

In July 2017, a Federal court in Minnesota grappled with the in-vogue issue of whether a former employee violates post-employment nonsolicitation provisions by asking her network for business on LinkedIn.

The warring factions in Mobile Mini v. Vevea, (see here) are direct competitors in the portable storage business.  Plaintiff sued when the defendant, a former sales representative for plaintiff, went to work for a competitor in violation of noncompete requirements in her employment agreement.  After the defendant posted on LinkedIn where she was working and requested viewers to call her for quote, the Plaintiff sued.

Partially granting the request for an injunction, the Court examined the pleading and proof elements for injunctive relief and whether a social media post can support a nonsolicitation violation.

Rule 65 of the Federal Rules of Civil Procedure governs preliminary injunctions.  The moving party must establish: (1) the likelihood of the moving party’s success on the merits; (2) the threat of irreparable harm to the moving party; (3) the state of balance between the alleged irreparable harm and the harm that granting the injunction would inflict on the other party; and (4) how the public interest is impacted if an injunction does/doesn’t issue.  The critical question on a request for an injunction is whether a Court should “intervene to preserve the status quo” until it determines the merits of the case.

Likelihood of Success on the Merits

The Court found plaintiff’s prospects for winning on the merits were strong.  To prevail on a non-compete claim in Delaware (Delaware law governed the parties’ agreement), a plaintiff must prove (1) the existence of a valid, enforceable contract; (2) breach of a contractual obligation by the defendant; and (3) damages.

A Delaware non-compete agreement is valid if it its duration and geographic reach are reasonably limited and the non-compete’s purpose and effect is to protect a legitimate employer interest. The Court found the subject agreement met these requirements

Next, the court turned to defendant’s LinkedIn activity and whether that amounted to a breach of the employment agreement.  The Court found the plaintiff breached the contract by making “two blatant sales pitches” for her new employer before the noncompete lapsed.

The court viewed the defendant’s solicitations as going further than simple status updates.  It held that had defendant simply posted her new position and contact information, it likely wouldn’t have run afoul of the defendant’s employment contract. For support, the Court pointed to an Ohio Federal court and a Mass. state court which held that a defendant’s social media postings did not rise to the level of an actionable noncompete claim. See Arthur J. Gallagher & Co. v. Anthony, 2016 WL 4523104, at *15 (N.D. Ohio 2016) (press release posted on LinkedIn and Twitter announcing that an employer had hired a new employee was not a solicitation); Invidia, LLC v. DiFonzo, 2012 WL 5576406, at *5 (Mass. Super. Ct. 2012) (hair stylist’s Facebook post announcing new job not a solicitation).

Since the defendant’s purpose in her LinkedIn postings was to entice business from her network and not simply announce a job change, the Court held that defendant likely violated the the employment contract.

Other Injunctive Relief Factors

The Court then found the plaintiff satisfied the irreparable harm element.  It noted defendant’s past and threatened future noncompete violations and that they could imperil plaintiff’s future customers, goodwill and reputation.

On the noncompete’s start date (the plaintiff wanted the court to reset the time to the date of the court’s order on the plaintiff’s preliminary injunction motion – several months after suit was filed), the court sided with the defendant.  The Court agreed that restarting the clock would give the plaintiff a windfall and impede defendant’s ability to earn a living.

Take-aways:

This case is instructive on how the line between digital self-promotion and blatant sales pitches can blur.  One of the case’s chief lessons is that while noncompetes are not favored,  social media posts can still violate post-employment restrictions.  Those who sign noncompetes should be careful whether their post-employment LinkedIn posts can objectively be viewed as a sales pitch.

 

 

LinkedIn Connection Requests Don’t Violate Insurance Salesman’s Noncompete – IL Court

The First District recently considered whether an insurance salesman’s generic LinkedIn invites to some former co-workers violated non-compete provisions in his employment contract.

The plaintiff in Bankers Life v. American Senior Benefits employed the defendant for over a decade as a sales manager.  During his employment, plaintiff signed an employment agreement that contained a 24-month noncompete term that covered a specific geographic area (Rhode Island).  Plaintiff sued when it learned the defendant sent some LinkedIn connection requests to some former colleagues.

The court granted the defendant’s summary judgment motion on the basis that the plaintiff failed to offer any evidence that the defendant breached the noncompete by trying to induce three of plaintiff’s employees to join defendant’s new agency.  Plaintiff appealed.

Plaintiff argued that the LinkedIn requests were veiled, if not blatant, attempts to circumvent the noncompete by inviting former co-workers to join a competitor.

The First District affirmed summary judgment for the defendant.  For support, it looked to cases in other jurisdictions that considered if social media overtures can violate employee restrictive covenants.  The Court noted that a majority of these cases hold that passive social media postings (LinkedIn and Facebook, mainly) don’t go far enough to violate a noncompete.

The cases that have found that social media breached noncompete obligations involve clear statements of solicitation by the departed employee where he directly tries to sign up a former client or colleague. Since all the defendant did in this case was send generic LinkedIn messages, they didn’t rise to the level of an actionable solicitation.

The Court also rejected the plaintiff’s argument that summary judgment was premature and that the plaintiff should have the opportunity to take more discovery on this issue.  Illinois Rule 191 allows a summary judgment opponent to stave off judgment while it takes written and oral discovery to assemble evidence to oppose the motion.  But the plaintiff must show a “minimum level of information” showing a defendant is possibly liable before initiating a lawsuit or making a defendant submit to discovery requests.

Since the plaintiff failed to produce any evidence the defendant solicited any of plaintiff’s employees in the prohibited Rhode Island area, summary judgment for the defendant was proper.

Afterwords:

LinkedIn generic invites that don’t specifically ask someone to sever his/her relationship with current employer don’t go far enough to constitute improper solicitation;

Summary judgment is “put up or shut up moment;” the party opposing summary judgment must offer evidence that raises a question of material fact that can only be decided after a trial on the merits.