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. 

 

 

Third Party Corporation Can Enforce Non-Compete After Stock Purchase

ThyssenKrupp Elevator Corporation v. Hubbard, 2013 WL 3242380 (M.D. Fla 2013) considers whether a company that buys the assets of another can enforce the purchased company’s non-compete agreements. 

The defendant was an elevator salesman for a company that was bought by the plaintiff. an elevator company.  The defendant previously signed a non-disclosure (involving intellectual property), non-solicitation and non-compete provision. 

Soon after plaintiff acquired his employer, defendant resigned and joined one of plaintiff’s competitors. Plaintiff sued, claiming a breach of the restrictive covenants. 

Defendant moved to dismiss on the ground that plaintiff wasn’t a party to the employment contract that contained the restrictive covenants.

The Court denied the motion to dismiss.  Citing a 2008 Florida Federal case (Johnson Controls, Inc. v. Rumore, 2008 WL 203575) and Florida’s Business Corporation Act, the court held that where there was a 100% merger or stock transfer, the surviving company (here, plaintiff) assumed all rights and obligations of the predecessor,  including rights under  the challenged non-compete agreement.  *2, Fla. Stat. § 607.1106 (surviving corporation of a merger shall have all the rights, privileges, immunities and powers, and shall be subject to all the duties and liabilities of the merged corporation). 

Here, in light of plaintiff’s stock purchase of defendant’s former employer, plaintiff was a “surviving corporation” and could sue to enforce defendant’s non-compete  

Take-aways:

A third party can enforce employee restrictive covenants where there is an asset purchase by the third party;

Employees should press for terms in their employment contracts that clarify only their direct employer (and not an acquiring company) can hold them to restrictive covenants.