‘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.

 

 

‘Helpful’ Client List Not Secret Enough to Merit Trade Secret Injunction – IL Court

Customer lists are common topics of trade secrets litigation.  A typical fact pattern: Company A sues Ex-employee B who joined or started a competitor and is contacting company A’s clients.  Company A argues that its customer list is secret and only known by Ex-employee B through his prior association with Company A.

Whether such a claim has legal legs depends mainly on whether A’s customer list qualifies for trade secret protection and secondarily on whether the sued employee signed a noncompete or nondisclosure contract. (In my experience, that’s usually the case.)  If the court deems the list secret enough, the claim may win.  If the court says the opposite, the trade secrets claim loses.

Novamed v. Universal Quality Solutions, 2016 IL App (1st) 152673-U, is a recent Illinois case addressing the quality and quantity of proof a trade secrets plaintiff must offer at an injunction hearing to prevent a former employee from using his ex-employer’s customer data to compete with the employer.

The plaintiff pipette (a syringe used in medical labs) company sued to stop two former sales agents who joined one of plaintiff’s rivals.  Both salesmen signed restrictive covenants that prevented them from competing with plaintiff or contacting plaintiff’s customers for a 2.5 year period and that geographically spanned much of the Midwest.  The trial court denied plaintiff’s application for injunctive relief on the basis that the plaintiff failed to establish a protectable interest in its clients.

Result: Trial court’s judgment affirmed.  While plaintiff’s customer list is “helpful” in marketing plaintiff’s services, it does not rise to the level of a protectable trade secret.

Rules/Reasoning:

Despite offering testimony that its customer list was the culmination of over two-decades of arduous development, the court still decided in the ex-sales employees’ favor.  For a court to issue a preliminary injunction, Illinois requires the plaintiff to show: (1) it possesses a clear right or interest that needs protection; (2) no adequate remedy at law exists, (3) irreparable harm will result if the injunction is not granted, and (4) there is a likelihood of success on the merits of the case (plaintiff is likely to win, i.e.)

A restrictive covenant – be it a noncompete, nondisclosure or nonsolicitation clause – will be upheld if is a “reasonable restraint” and is supported by consideration.  To determine whether a restrictive covenant is enforceable, it must (1) be no greater than is required to protect a legitimate business interest of the employer, (2) not impose undue hardship on the employee, and (3) not be injurious to the public.  (¶ 35)

The legitimate business interest question (element (1) above) distills to a fact-based inquiry where the court looks at (a) whether the employee tried to use confidential information for his own benefit and (b) whether the employer has near-permanent relationships with its customers.

Here, there was no near-permanent relationship between the plaintiff and its clients.  Both defendants testified that many of plaintiff’s customers simultaneously use competing pipette vendors.  The court also noted that plaintiff did not have any contracts with its customers and had to continually solicit clients to do business with it.

The court then pointed out that a customer list generally is not considered confidential where it can be duplicated or pieced together by cross-referencing telephone directories, the Internet, where the customers use competitors at the same time and customer names are generally known in a given industry.  According to the Court, “[i]f the information can be [obtained] by calling the company and asking, it is not protectable confidential information.” (¶ 40)

Since the injunction hearing evidence showed that plaintiff’s pipettes were typically used by universities, hospitals and research labs, the universe of plaintiff’s existing and prospective customers was well-defined and known to competitors.

Next, the court rejected plaintiff’s argument that it had a protectable interest because of the training it invested into the defendants; making them highly skilled workers. The court credited evidence at the hearing that it only takes a few days to teach someone how to clean a pipette and all pipette businesses use the same servicing method.  These factors weighed against trade secret protection attaching to the plaintiff’s customers.

Lastly, the court found that regardless of whether defendants were highly skilled workers, preventing defendants from working would be an undue hardship in that they would have to move out of the Midwest to earn a livelihood in their chosen field.

Afterwords:

This case provides a useful summary of what a plaintiff must show to establish a protectable business interest in its clients.  If the plaintiff cannot show that the customer identities are near-permanent, that they invested time and money in highly skilled workers or that customer names are not discoverable through basic research efforts (phone directories, Google search, etc.), a trade secrets claim based on ex-employee’s use of plaintiff’s customer list will fail.

No Commercial Disparagement Or Non-Compete Equals Denial Of Injunction – IL Court

In Xylem Dewatering Solutions, Inc. v. Szablewski, 2014 IL App (5th) 140080-U,  the plaintiff corporation sued some of its ex-employees after they joined a competitor and started raiding plaintiff’s office staff.

The trial court denied plaintiff’s request for an injunction and then it appealed.

Result: Trial court’s order upheld. Plaintiff loses.

Reasons: To get a preliminary injunction, a plaintiff must establish (1) a clearly ascertained right in need of protection; (2) irreparable injury; (3) no adequate remedy at law; and (4) a likelihood of success on the merits.

The plaintiff must establish a “fair question” on each of the four elements. A preliminary injunction is an extraordinary remedy that is only granted in extreme, emergency settings. (¶¶ 20-21).

Irreparable harm can result from commercial disparagement of a plaintiff’s product but the plaintiff must show the defendant repeatedly made false or misleading statements of fact regarding the plaintiff’s goods and services to establish irreparable harm.  Statements of opinion (“their services suck!”, e.g.) don’t qualify as commercial disparagement. 

Here, the Court found that there were no repeated factual statements made by the defendants.  In addition, all statements that were attributed to the defendants were purely interpretive: they weren’t factual enough to be actionable.  (¶¶ 23-24).

In finding that the plaintiff lacked a protectable interest in its employees or customers, the court pointed out that neither individual defendant signed a non-compete and didn’t violate any fiduciary duties to the employer.

In Illinois, absent a non-compete, an employee is free both to compete with a former employer and to outfit a competing business so long as he doesn’t do so before his employment terminates.  And while a corporate officer owes heightened fiduciary duties not to exploit his position for personal gain, the ex-employee defendants were not corporate officers. (¶ 26).

Plaintiff also failed to establish a protectable interest in its pricing and bid information.  The Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. (“ITSA”) extends trade secret protection to “information” that is (1) sufficiently secret to derive economic value, from not being generally known to others who can obtain economic value from its use, and (2) that is the subject of reasonable efforts to maintain the information’s secrecy (i.e., “kept under lock and key”)

Information that is generally known in an industry – even if not to the public at large – isn’t a trade secret. Also, information that can be readily copied without a significant outlay of time, effort or expense is not a trade secret. 

The pricing data the plaintiff was trying to protect was several years old and the defendants testified that the bidding information was well known (and therefore not secret) in the pumping industry.  In combination, these factors weighed against a finding of trade secret protection for the pricing and bidding information. (¶¶ 29-31).

Afterwords:

(1) Stale data likely won’t qualify for trade secret status – no matter how arcane the information;

(2) If information is well known or can be easily accessed within an industry, it won’t be given trade secret protection;

(3) Noncompete agreements can serve vital purposes.  If a business fails to have its workers sign them, the business risks having no recourse if an ex-employee joins a competitor and later raids the former employer’s personnel.