Late last week, Rutgers announced that it reached a $475,000 settlement with former men’s basketball coach Mike Rice and that no cause for Rice’s termination would be provided. Recently-publicized videotapes show Rice at practices hitting, kicking and throwing basketballs at his players and taunting them with obscenities and anti-gay slurs (not to be confused with this shocking video of Middle Delaware State women’s basketball coach Sheila Kelly throwing toasters at her players). The announcement came more than two weeks after Rutgers President Robert Barchi told reporters that Rice was fired, but not for cause. And that announcement came several months after Rice was suspended from work for three days, following an internal investigation by outside counsel, resulting in this report.
Almost faster than a pop-up ad, AOL Inc. sued one of its former executives one day after he left the company for another pioneering Internet business – Yahoo, Inc. AOL, which also named Yahoo as a defendant, alleges that Edward Brody’s employment agreements with it prevent Yahoo from hiring him as the head of its Americas sales division.
AOL’s pleading, filed Friday in New York State court, is not yet a full complaint laying out all of its allegations, but only a summons with notice – which under the rules governing New York’s courts can be used to begin a suit instead of a complaint, but only if it includes “a notice stating the nature of the action and the relief sought.” The brief “notice” AOL included tells us a lot: Brody, AOL alleges, is bound by two employment agreements – one dated June 2012 and one dated November 2009. The company – which you may recall started as an online game service for Commodore 64’s and similar early home computers – argues those agreements are enforceable against Brody (who until Thursday was the head of AOL Networks), and “prohibit Defendant Yahoo Inc. from employing and/or using his services during the notice and post-employment restricted periods” in them.
We’ve written at length about the rapidly-changing landscape regarding covenants not to compete, including the first-in-the-nation law in California that essentially prohibits all such agreements, and we’ve kept you abreast of how various states have responded to the California statute, including New York and Massachusetts. (“The State-by-State Smackdown”)
Now, covenants not to compete typically arise in the context of an employment agreement, with the employee agreeing that if she leaves the company (or is fired), she will not flee to the company’s closest competitors. Typically, the question as to whether such agreements are enforceable turns on how narrowly-tailored the covenant is to serve its purpose, which means the determination is generally made on a case-by-case basis. This reflects a balancing of two goals: ensuring free and fair competition in the marketplace, and also protecting a company against rivals seeking to “poach” its employees and potentially steal secrets, practices, and other confidential information. It’s a tough balance to strike, and the parties typically only figure out exactly where the line should be drawn once one party sues the other.
Time for our second tip of the week about employment agreements. We’re looking at things many of us think we should do about employment agreements but that, oddly enough, aren’t being done – at least in the two cases we profile this week, each of which made it to a state high court.
Our first tip was straightforward: if you have an employment agreement, or think you have one but aren’t sure – get it in writing.
Our second tip follows the first. Once you’ve reduced your employment agreement to writing, make sure it’s clear – or at least, as clear as possible. Clarity will reduce the time and money you’ll spend if you get into a dispute over the agreement.
Whether you’re an executive or a hiring manager, here’s a tip: if you think you have an employment agreement, or if you want to have an employment agreement, get the agreement in writing.
Sounds basic, right? Most of us know that. But a recent decision from New York’s highest court in Gelman v. Buehler suggests that not everyone does, and illustrates the consequences of not having a written agreement.
Since you’re already giving up all productivity during the big dance, why not check out the latest in Suits by Suits?
If you’re a regular Suits by Suits reader – and if you aren’t, why not? – you know that we think California’s first-in-the-nation law prohibiting essentially all covenants not to compete in employment contracts is going to be a major factor in future executive employment agreements and disputes across the country. Indeed, we’ve been keeping track as other states respond in various ways to the California law. (For details on the California law and its implications, see our prior piece, the “State by State Smackdown.”)
In our March 1 Inbox, we flagged a bill under consideration by the Massachusetts state legislature, House Bill No. 1715, which would establish that noncompete clauses of six months or less are presumptively reasonable, and clauses exceeding six months can be enforced if the court finds that the employee has (a) breached a fiduciary duty, (b) taken company property, or (c) earned at least $250,000 per year in annualized compensation.
The status quo in Massachusetts (and the majority of states) permits covenants not to compete, subject to a case-by-case judicial balancing test that considers the interests of the former employer against the hardships to the employee and the public.
It is tempting, then, to view House Bill No. 1715 as a “halfway point” between the existing law in Massachusetts and California’s outright ban. Under this view, the new proposed legislation would be seen, politically, as moving Massachusetts in the direction of California and away from upholding noncompete agreements. And indeed, thanks to some excellent reporting by Don Seiffert, an Associate Editor at the Boston Business Journal, we’ve discovered that’s precisely the view of Massachusetts Governor Deval Patrick (D).
Read on....
Many people love the ABC medical drama Grey’s Anatomy. I’m not one of them. Maybe it’s because I generally dislike any show in which a character is assaulted by an icicle.
Recently, however, the show featured an issue that is near and dear to the hearts of those of us who focus on executive-employer disputes: non-compete agreements. The episode in question involved a plotline in which the lead characters were planning to buy their own hospital. They concluded that they couldn’t tell one of their colleagues about the plan, because he had a non-compete/non-disclosure agreement with a competing buyer, and he could end up in jail if he breached that agreement. Did the show get this right?
This week in suits by suits:
Engineer Milos Milosevic may have thought that he and Schlumberger Technology Corporation were like oil and water when he recently left Schlumberger, which provides services to the oil and gas industry, to work for Halliburton Company, a direct competitor. On Friday, a Texas state court said not so fast, and issued a temporary restraining order (or TRO) against Dr. Milosevic that prohibits him from starting his new job at Halliburton. The court also ordered Dr. Milosevic to “restrain from using or disclosing [Schlumberger’s] trade secrets,” and to “immediately return” any of Schlumberger’s documents or other property. Schlumberger requested the TRO at the outset of a lawsuit that it filed against Dr. Milosevic for breach of a non-compete contract and misappropriation of trade secrets.
As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.
Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.
John J. Connolly
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