What do Duke and North Carolina have in common with the nation’s favorite fast food chains? In this podcast, Lisa Ryan talks about no-poach agreements, employment policies, loyalty, confidential information, and non-disclosure agreements.
If I say “Duke versus North Carolina” – what do you think of? My mind immediately goes to their long standing basketball rivalry. But, now that March Madness is over, and all our brackets were a bust, what do you think the two universities have in common with fast food rivals Buffalo Wild Wings, Five Guys Burgers and McDonald’s?
Here’s a hint: it I has nothing to do with enjoying a college game with your favorite fast food.
Fact: The universities and fast food chains have all been under intense scrutiny for their “no poach” agreements. Historically, many employers have used these type of agreements to prevent employees from working for competing businesses. You may have even considered using such a “no poach” agreement to maintain a consistent workforce without the stress of losing your most talented employees to your rival.
In California’s Silicon Valley, this practice had been considered prohibited for many years since Apple, Google, Intel and Adobe agreed to settle a lawsuit. The lawsuit accused them of conspiring to prevent the hiring of each other’s employees. Essentially, “no poach” agreements. In spite of this, I still run across agreements that have these “no poach” clauses. Sometimes this is because they were drafted by attorneys in other states, or were on behalf of companies that are headquartered outside of California,
But recently a series of lawsuits has pressured dozens of fast food chains nationwide, including Carl’s Jr., Little Caesars and Dunkin’ Donuts, from entering or enforcing such agreements. These agreements arguably deny workers leverage to seek higher wages by working for another franchisee – or even a competitor.
So the DOJ has also filed a statement of interest in a class action accusing Duke University of employing a “no poach” agreement with the University of North Carolina. That agreement eliminated competition for skilled medical labor. While the universities agreed to stop the practice, litigation continues.
So what if one of your employees leaves to work for your competitor and then tries to recruit your current employees to leave for the competitor as well? Do you think that would be legal? As Chris Moores writes in the companion piece on the recent case of AMN HealthCare, such non-solicitation agreements are also now under intense scrutiny. At least one court has followed the AMN decision by allowing a former employee to present a claim that the use of an employee non-solicitation provision in his employment agreement violated California law.
But this doesn’t mean you can’t do anything to protect your business after an employee leaves!
Employees are not allowed to misappropriate company trade secrets. In a March 2019 decision, the 9th Circuit backed Anheuser-Busch after a former employee was accused of stealing its beer recipes and passing them on to attorneys who sought to bring a class action, over allegedly watered-down beer. This case illustrates the importance of having clearly defined policies informing employees of their duty not to disclose confidential information.
Similarly, Tesla recently sued four former employees of stealing company trade secrets on their way out the door to work for a competitor. There, the employees had emailed themselves proprietary information prior to resigning from Tesla. The competitor unintentionally revealed it was actually using that stolen proprietary information after mistakenly emailing those documents to the old Tesla email addresses.
So, while contracts agreeing not to compete or work for a competitor after leaving your employment are generally void in California under our Business and Professions Code § 16600, your policies can protect you. It is important to have policies detailing duty of loyalty, describing proprietary and confidential information, and enforcing non-disclosure agreements. Additionally, employers should be sure that all employees are aware of the company’s right to access all material and communications on company computers and servers when potential issues may arise. You may also consider creating internal practices that secure the electronic information of departing employees.
Although these recent decisions highlight that “no poach” and non-solicitation agreements may be deemed unfair to workers in a free market, this doesn’t mean there aren’t steps you can take to protect the information that is unique to your business’s success!
I’m Lisa Ryan. Thanks for listening. As a reminder, this podcast is focused on California law, so if you’re outside of our state you’ll need to do some research on your own or consult an attorney admitted to practice in your state. And of course, we want our listeners to understand that this podcast is for general informational purposes only and does not create an attorney / client relationship.
If you’d like specific guidance on this issue, we can help.