Facebook Announcement Doesn’t Equal Improper Client Solicitation: Mass. Court

In Invidia v. DiFonzo, 30 Mass. L.Rptr 390 (2012), a hair salon sued a former stylist for breaching a non-compete and non-solicitation clause in her employment agreement.  The Court examined whether the new employer’s posting a job change on defendant’s Facebook page and “friending” former clients was improper solicitation.

The employment contract contained a non-compete spanning two years and 10 miles and a two-year non-solicitation clause.  After she resigned, the defendant went to work for a competing salon less than two miles away.  Her new employer then posted an announcement on its Facebook page, promoting defendant’s new affiliation with the competing salon. 

The plaintiff saw the Facebook activity and sued.  The Court denied the request for injunctive relief because plaintiff failed to show a likelihood of success on the merits or irreparable harm.

Rules/Reasoning:

A preliminary injunction plaintiff must show (1) likelihood of success on the merits; (2) irreparable harm if the injunction is denied; and (3) the risk of irreparable harm to the movant outweighs similar risk of harm to the opposing party.  *2. 

Massachusetts courts scrutinize non-competition agreements because they often result from unequal bargaining power.  A covenant not to compete is enforceable only if it’s necessary to protect a legitimate business interest, is reasonably limited in time and space, and supported by the public interest.  *4.

The Non-Compete Provision

The salon plaintiff failed to show that it was likely to succeed on the merits on the noncompete because it was questionable whether a two-year/10-mile restriction was necessary to protect plaintiff’s interest and because plaintiff failed to show that its “legitimate business interest” – the goodwill which plaintiff claimed it lost – belonged entirely to plaintiff.  *5.  

The Court noted that in the hairdressing business, goodwill often belongs to the individual stylist rather than the salon.  That is, customers likely patronize a salon for a specific hairdresser; not because they like the salon itself. 

The Court also found the plaintiff failed to show irreparable harm, since plaintiff could clearly quantify its damages.  The Court pointed out that plaintiff offered evidence of the number of clients that it lost since defendant left (90) and the average dollar amount spent ($87.16) by each lost client.  This militated against a finding of irreparable harm.  *5.

The Non-Solicitation Clause

Turning to the non-solicitation clause, the Court found that the Facebook announcement of defendant’s affiliation with the new salon (by that salon) did not equate to active solicitation.*5.  

Nor did the defendant’s sending  friend requests to eight clients of plaintiff amount to a breach of the non-solicitation provision. 

The employer did however have some circumstantial evidence in support of its solicitation argument.  It offered documents at the injunction hearing that demonstrated that some 90 salon clients had cancelled (without rescheduling) appointments in the two-plus months since defendant’s departure. *6.  Yet the Court wasn’t prepared to find this a breach of the anti-solicitation provision.  The Court stressed that no current or former clients testified that defendant contacted them and solicited their business.

Take-aways: A third party’s passive Facebook posting and direct Facebook friends requests are not enough to establish solicitation for preliminary injunction purposes.  Instead, there must be direct evidence of active solicitation to merit injunctive relief.

 

 

 

Successor Corporation Can’t Enforce Expired Restrictive Covenants

 

Stericycle, Inc. v. Carney, 2013 WL 3671288 (N.D.Ill. 2013) is post-worthy for its useful  gloss on the enforceability of restrictive covenants, Federal pleading requirements and a purchasing corporation’s standing to assert the restrictive covenant rights of its predecessor.

Facts:  In 2007 and 2008, defendant signed employment agreements (the “SEI Agreements”) with SEI, his former employer.  The SEI Agreements contained 2-year non-disclosure and non-solicitation provisions. Plaintiff Stericycle acquired SEI in 2009 as part of a stock purchase. 

Defendant later signed separate employment agreements (the “Stericycle Agreements”) in 2009 and 2011.  In late 2011, defendant resigned and within a month went to work for a competitor in the waste management business. Plaintiff then filed suit to enforce the SEI Agreements and the Stericycle Agreements.

Disposition: Plaintiff’s claims dismissed.  The Court granted the defendants’ 12(b)(6) motion to dismiss plaintiff breach of contract claims based on the SEI Agreements with prejudice (claims can’t be refiled) and the Stericycle Agreements without prejudice (claims can be refiled).

Reasoning: The Court dismissed the SEI Agreements because there the two-year restrictive covenants contained in them expired by their terms.  The record demonstrated that that defendant stopped working for SEI in January 2009 and didn’t begin working for his current employer, an SEI competitor, until October 2011 – well past the two-year restrictive period. 

But putting aside the expiration of the contractual two-year restrictions, the Court did hold that the plaintiff – the successor entity – had standing to enforce the SEI Agreements.  That’s because they expressly provided that their restrictive covenants were enforceable by SEI’s successors and assigns.  And since plaintiff was a successor to SEI, plaintiff had standing to sue on the SEI Agreements. 

 The Court also struck plaintiff’s claims which alleged defendant’s breach of the Stericycle Agreements.  The Court found plaintiff’s allegations too conclusory – even under Federal notice pleading rules – to allege that defendant breached the Stericycle Agreements’ non-disclosure terms.  

Plaintiff pled no facts to plausibly suggest that  defendant violated the non-disclosure provisions. The Court also held that to adequately plead breach of a non-compete covenant, the plaintiff must do more than simply say that defendant’s current position is similar to his former position at plaintiff. 

On the issue of whether the Stericycle Agreements’ were enforceable, the Northern Disrtrict stated it couldn’t decide this based only on the complaint’s allegations. 

It cited basic Illinois rules on restrictive covenants: (1) a restrictive covenant will be upheld if it’s a reasonable restraint and supported by consideration; and (2) will be found reasonable only where (a) it’s no greater than necessary to protect the employer’s legitimate business interest; (b) it doesn’t impose an undue hardship on the employee; and (c) the restriction doesn’t injure the public.  

The Court found there were too many fact questions – such as the covenants’ geographic reach and what business interest plaintiff was trying to protect – that couldn’t be resolved on a  bare complaint (i.e. without any discovery) and declined to find the Stericycle Agreements’ restrictions unreasonable.  

 Take-aways:

(1) The Federal notice pleading standard has some teeth: Plaintiff must do more than regurgitate a cause of action’s elements and must also allege specific facts in support of a given claim;

(2) A successor corporation can enforce a restrictive covenant contained in a predecessor’s employment contract where that contract provides that it’s enforceable by a successor or assignee; and

(3) whether a restrictive covenant is reasonable (and enforceability) will most likely not be decided only on a complaint before discovery is taken. 

 

 

Seventh Circuit Strikes Down Employer’s Claim for Permanent Injunctive Relief in Non-Compete Case

Earlier this month, in Tradesman International, Inc. v. Black, et al., 2013 WL 3949020 (7th Cir. 2013), the Seventh Circuit affirmed summary judgment against a plaintiff construction staffing firm that sued four former employees for violating restrictive covenants they signed while employed by plaintiff. 

The Plaintiff sought to enforce 18-month long and (effectively) nation-wide restrictive covenants (“non-competes”) that prevented defendants from (a) ever disclosing plaintiff’s proprietary information and (b) from soliciting construction staffing business within 100 miles of a Tradesman field office and within 25 miles of any Tradesman customer location.  2013 WL 3949020 at *2. 

The District Court granted summary judgment for the defendants on all claims because plaintiff failed to prove compensable damages and therefore could not show irreparable harm: a required permanent injunction element.

Disposition: The Seventh Circuit affirms District Court on summary judgment ruling; reverses on denial of defendants’ attorneys’ fees under Illinois Trade Secrets Act claim. 

Grounds: (1) Plaintiff employer failed to show irreparable harm; and (2) Plaintiff’s restrictive covenants (the “non-competes”) were unreasonable – both in terms of content and geographic scope.

Reasoning:  Plaintiff showed no harm, much less irreparable harm.  Irreparable harm means damages that are ongoing and difficult to quantify.  The Court held that since plaintiff failed to seek preliminary injunctive relief (as opposed to permanent injunctive relief), this undermined its irreparable harm claim (in other words, why didn’t the plaintiff move for preliminary injunctive relief if its damages were so dire?). 

The Court noted that a permanent injunction would be too “costly” as it would require defendants to reverse several years worth of efforts in building up their competing staffing firm.  Tradesman, at *7-8.

The Seventh Circuit also found the non-competes signed by the defendants unreasonable under Ohio law.  A contractual choice-of-law clause provided that Ohio law would govern (The plaintiff was an Ohio corporation.)

Ohio considers a restrictive covenant’s time and space limitations, whether trade secrets or confidential information are/is involved, whether the employer seeks to stifle ordinary competition, and the detrimental impact on the employee’s livelihood.  Id. at *9.

Applying the factors, the Tradesman Court found that the proprietary information which plaintiff sought to protect was unreasonable.  The Court noted that the information plaintiff was suing on – worker’s compensation and manager compensation rates, marketing materials and Dun & Bradstreet reports – was either publicly available, generally known or was information that the plaintiff didn’t try to keep secret.  *8-9. 

A plaintiff generally has to show that it tried to keep information confidential (under “lock and key”) for that information to qualify as a trade secret.

The Court also found the non-competes’ geographic restrictions unreasonable.  They were so expansive, they were basically nation-wide restraints.  To comply with the non-competes as  written, the defendants really couldn’t work anywhere in the U.S.  *9-10.

Lessons:

1/ publicly available or generally known information will not qualify for proprietary or trade secret information protection;

2/ restrictive covenants that don’t involve true trade secrets or proprietary information and that have nation-wide reach (“you can’t work anywhere in the U.S.”, e.g.) will not be enforced; and

3/ the party that loses a trade secrets case may have to pay the winning party’s fees even if the party had good faith belief in its claim when it filed the lawsuit – but later learns that its claim lacks merit (and still presses forward with the case).