As long-standing readers of Suits by Suits know, California is at the forefront of the “state-by-state smackdown” regarding covenants not to compete, having prohibited essentially all such clauses by statute.  (You can refresh your recollection by reviewing our discussion of California law, here.)

Consequently, one of the arguments deployed by other states looking to restrict or ban noncompetes is that the business climate created in California encourages worker mobility, and that climate in turn is attractive to the technology sector (and in particular, to technology start-ups), who depend upon “poaching” away top talent that may be underpaid at a competitor.  You can read these arguments in more depth here (part 1), here (part 2), and most recently here (part 3).

The common thread that runs through these arguments is that California encourages worker mobility, and that mobility, in turn, is good for Silicon Valley.  The argument has some appeal.

• Civil Litigation
• Noncompete Agreements ‎

We have written before here on Suits by Suits about the risk to a company hiring an executive from a competitor of being sued by the competitor for tortiously interfering with the executive’s non-compete agreement.  A recent decision from a federal court in Pennsylvania sheds light on another facet of that risk:  being forced to defend the lawsuit in a faraway court favored by the competitor because the executive agreed to be sued there. 

• Breach of Contract
• Civil Litigation
• Noncompete Agreements ‎

If you’re confused by this headline, you’re not alone.  But you can’t be as confused as Debourah Mattatall must be after losing her lawsuit against her former employer, Transdermal Corporation.

The origin of Mattatall’s lawsuit, appropriately enough, was another lawsuit.  Mattatall used to own a company called DPM Therapeutics Corporation.  DPM’s minority shareholders sued her to prevent her from selling the company to Transdermal.  She went ahead with the sale anyway, and signed a Stock Purchase Agreement and Employment Agreement with Transdermal.  According to Mattatall, Transdermal didn’t fulfill its obligations under those deals, citing a lack of funds.

After Mattatall’s sale to Transdermal was final, Transdermal brought its own suit against the DPM minority shareholders.  All parties, including Mattatall, eventually settled the two shareholder cases.  Before agreeing to the settlement, Mattatall complained about the money that she was owed under the Stock Purchase Agreement and Employment Agreement.  Transdermal’s counsel assured her that her claims were “wholly extraneous” and she would be “free to pursue” her claims against Transdermal. 

In the written settlement, however, everyone released the claims that they “had, has or hereafter may have” against any other party.  Thus, even though Transdermal hadn’t sued Mattatall, according to the language of the release, she was giving up her claims against it.  The settlement also included a “merger clause,” under which all prior understandings were “merged” and “supersede[d].”

• Civil Litigation
• Releases
• Summary Judgment

Jerry Kowal doesn’t have a lot of nice things to say about his former employer, Netflix.  In a recent lawsuit filed in California Superior Court, he claims that Netflix was a “cold and hostile company,” with a “cutthroat environment.”

According to Courthouse News’s description of Kowal’s complaint, Netflix didn’t have very nice things to say about Kowal, its former content acquisition executive, either.  Kowal alleges that when he told Netflix he was leaving for Amazon, Netflix lashed out by accusing him of stealing confidential information and passing it on to Amazon.  As a result of these accusations and Amazon’s “strict liability policy,” he was fired.

Now, Kowal has sued Netflix, its CEO Reed Hastings, executive Ted Sarandos, and Amazon, alleging a number of torts including defamation, false light invasion of privacy, civil conspiracy, intentional interference with employment relationship, blacklisting and wrongful termination.  Kowal’s suit shows that an employer’s decision to accuse a departed employee of wrongdoing carries with it a significant litigation risk, especially if the employee loses his job as a result of the accusation.

• Civil Litigation
• Confidentiality
• Defamation
• Wrongful Termination

In researching and writing Monday’s blog post, I came across another unique wrinkle in the Florida statute that governs covenants not to compete, § 542.335 of the Florida Statutes.  I think it's worth examining that provision in more detail as part of our ongoing efforts to educate employers and employees as to the varying state-by-state nuances in different jurisdictions that can affect the ultimate questions as to whether and how that state will enforce an employee’s covenant not to compete.

• Civil Litigation
• Noncompete Agreements ‎

In our recurring “State-by-State Smackdown” series on the evolving law with respect to covenants not to compete, we’ve described the traditional balancing-test approach that is the law in the majority of jurisdictions as the Legitimate Business Interest or “LBI” test.  In understanding this shifting landscape, we’ve typically highlighted statutes and/or judicial opinions in jurisdictions that have begun to shift away (or even depart entirely) from the classical LBI analysis.

Today, we’re doing something a little different, taking our cue from a recent New York state appellate decision:  Brown & Brown, Inc. v. Johnson, 980 N.Y.S. 2d 631 (App. Div., 4th Dep’t, February 7, 2014).  Read on.

• Breach of Contract
• Civil Litigation
• Noncompete Agreements ‎

Did you hear the one about the Buddhist marketing director who refused an order to add Bible verses to the daily morning e-mail he sent to all employees – and then got fired the next day, after an otherwise successful eight-year career?

This is, of course, not an opening line to a joke, but another installment in our occasional series about the intersection of religious beliefs (of all types) and employment – also of all types.  Religion and employment issues – whether it’s an employee in the C-suite or someone further along the hierarchy – almost never mix well.  Just this week, of course, nine of our fellow lawyers who happen to sit on the Supreme Court are hearing arguments in two cases about whether a company with a religious belief about contraception is exempt from the Affordable Care Act’s requirements for employer-provided health insurance. 

Far away from the hallowed marble home of the Supreme Court (which, by the way, we think is in a fine building -- unlike former Justice Harlan Fiske Stone) and down in the Eastern District of Texas, a new suit raises an interesting question of prohibited religious discrimination under Title VII: namely, can a fired Buddhist employee win damages from a company that, he says, fired him after eight years because he refused to put Bible quotations in the daily e-mail his employer had him write and send to all of the company’s 500 employees? 

• Civil Litigation
• Discrimination
• Religious Discrimination‎
• Title VII

Top ‘o the mornin’ to ya!  In honor of St. Patrick’s Day, we considered writing today’s inbox entirely in Irish-speak.  We could have told you to sit down and wet the tea, or sip on a pint of Gat, while we spun tales of how an executive’s suit put the heart crossways in his employer.  But because we didn’t want anyone feeling the fear tomorrow, we decided to stick with our tried-and-true approach of (somewhat) plain American English.

• Bonuses on Wall Street are flowing like Guinness, says The Age.  New York’s state comptroller says that firms paid their highest bonuses since 2007, with an average of $164,530.  However, for those looking to get a piece of that pot of gold, the news wasn’t all good: jobs in finance declined.

• Glenn Kessler of the Washington Post’s Fact Checker put together this interesting piece on Edward Snowden’s claim that federal law did not protect him from whistleblower retaliation.  Kessler concluded by awarding Snowden only one Pinocchio for “some shading of the facts.”  Snowden has many Pinocchios to go if he wants to reach the levels achieved by many illustrious citizens of Washington, D.C.

• Andrew Burrell of The Australian reports that BHP Billiton’s decision to pay large bonuses has boomeranged on the executives of the resources giant, with shareholders voicing their disapproval (subscription required).  Yes, we included this news solely to use the pun.  No, we do not have a subscription to The Australian.

• TheTownTalk.com brings us news of a Louisiana College VP’s lawsuit against his employer in state court.  The vice president, Tim Johnson, claims that the Baptist school and its president retaliated against him for blowing the whistle on the president’s diversion of funds.  An outside law firm has already advised the college that the president “misrepresented material information to the Board of Trustees on countless occasions,” but a committee appointed by the board rejected that conclusion.

• A New York trial judge questioned a hedge fund’s efforts to have a former analyst jailed for stealing trade secrets, reported Stewart Bishop of Law360 (subscription required, and yes, we do have one).  Justice Jeffrey Oing told lawyers for Two Sigma Investments LLC that it might be “going over the top” by pursuing jail time for Kang Gao, who is accused of illegally accessing and copying Two Sigma’s confidential information.

• Civil Litigation
• Confidentiality
• Executive Compensation
• Whistleblowers

Earlier this week, we outlined the rights of indemnification and advancement, and discussed how those rights can hinge on the statutory law governing a corporation and the private agreements that companies enter into with their officials.  In this post, we review a recent decision to see how these principles apply in real life.

The decision comes from Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery.  Because many companies are incorporated in Delaware, the Delaware courts handle some of the most preeminent disputes involving corporate law, and they have significant experience addressing issues of indemnification and advancement. 

The Vice Chancellor’s opinion illustrates a judicial view that companies sometimes agree to broad rights at the outset of an employment relationship, but then seek to back away from those agreements once a dispute arises.  He wrote:

It is far from uncommon that an entity finds it useful to offer broad advancement rights when encouraging an employee to enter a contract, and then finds it financially unpalatable, even morally repugnant, to perform that contract once it alleges wrongdoing against the employee.

Vice Chancellor Glasscock’s ruling also shows how courts will review the governing statutes and agreements in order to decide whether a company’s denial of advancement is legally justified.

This particular dispute, Fillip v. Centerstone Linen Services, LLC, 2014 WL 793123 (Del. Ch. Feb. 20, 2014), involved Karl Fillip, the former CEO of Centerstone.  Fillip resigned, claiming that he had “Good Reason” for the resignation under his employment agreement and therefore was entitled to receive certain bonuses and severance pay.  When Centerstone wouldn’t pay up, Fillip sued it in Georgia state court, alleging breach of contract and also seeking a declaratory judgment that restrictions in his employment agreement were invalid.  Centerstone then filed counterclaims, which triggered a response from Fillip for advancement of funds to defend against those claims.

Centerstone, as you might imagine, was not happy about this turn of events.  It refused his request, but also said it would withdraw certain counterclaims because it didn’t want to pursue claims “that could potentially trigger an obligation by Centerstone to pay Mr. Fillip’s attorney’s fees and costs in defending them.”  Dissatisfied, Fillip sued in Delaware for advancement of his fees.

• Breach of Contract
• Civil Litigation
• Executive Compensation
• Indemnification and Advancement
• Severance Agreements

In yesterday's post, we covered the background of Tuesday's Supreme Court decision in Lawson v. FMR, LLC, and took an in-depth look at Justice Ginsburg's majority opinion.  Today, we look at what the other Justices had to say.

Justice Scalia, joined by Justice Thomas, signed on to Justice Ginsburg's opinion in principal part, but also authored his own opinion.  Justice Scalia and Justice Thomas subscribe to the position that a judge, in reading and interpreting a statute, should not examine what Congress said in places other than the statutory language, such as in committee reports and floor speeches.  Based on that judicial philosophy, Justice Scalia criticized Justice Ginsburg for her “occasional excursions beyond the interpretative terra firma of text and context, into the swamps of legislative history.” 

• Civil Litigation
• Sarbanes-Oxley Act
• Whistleblowers