Sometimes Hiring a New Employee Can Invite an Unwanted Lawsuit

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Let’s set the scene:  Your search for an employee with the required job skills and experience results in your Florida-based company’s decision to hire someone presently working for your competitor.  During the salary/benefit negotiations, you learn that your prospective employee executed a non-compete agreement with her present employer.  “Not to worry,” you tell her.  “If your present employer sues you to enforce the non-compete we will pay for your defense.  In fact, we’ll make it part of your contract if you come for us.”  Bad move.

Many prospective employers believe non-compete agreements only have legal consequences for prospective employees.  However if ─ as in the example above ─ the prospective employer is aware of the agreement before hiring the employee, then the prospective employer runs the risk of liability to the former employer for tortiously interfering with the non-compete agreement. While the past employer will have to prove the new employer had knowledge of the non-compete agreement as part of a tortious interference claim, a new employer makes this task easier when it includes a provision agreeing to indemnify the employee for any litigation over non-compete agreements.

To prove tortious interference with a non-compete, Florida courts apply a four-prong test:  1) existence of a business relationship; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship by the defendant; and (4) damage to the plaintiff as a result of the breach of the relationship.  Tamiami Trail Tours, Inc. v. Crosby, 463 So. 2d 1126 (Fla. 1985).

How then does a prospective or subsequent employer protect itself from the former employer’s tortious interference claim?  For starters, avoid agreements to indemnify the new employee and/or pay for legal defense costs associated  with possible breach of the non-compete agreement.  As recently as May 2012, a Florida federal court reasoned that the plaintiff was “substantially likely to prevail on the claim of tortious interference” in large part because the new employer “expressly acknowledged the Agreement between [the employee] and [the plaintiff] and the restrictive covenants contained therein.”  The new employer, as part of its agreement with the employee, “agreed to assume [the employee's] defense in the event she [was] sued by [the plaintiff] over the terms of the Agreement, and indemnify her from any and all expenses, fees, damages, judgments, and amounts incurred by her in connection with the action.” The court held that this express knowledge of the non-compete agreement was evidence that the new employer caused the employee to breach the non-compete agreement. See Electrostim Medical Services, Inc. v. Lindsey, (M.D. Fla. 2012).

And this isn’t the first time a federal court in Florida found that a former employer could sue a subsequent employer for tortious interference.  In a 1998 federal court opinion the  employee testified that he had informed the new employer about his employment agreement with the plaintiff without actually providing a copy.  When coupled with testimony that the new employer hired the employee to essentially recreate the former employer’s products, the court found enough evidence to reason that “the facts . . . support a substantial likelihood that Plaintiff [would] ultimately prevail on the claim of tortious interference.”  See Stoneworks, Inc. v. Empire Marble & Granite, Inc. (S.D. Fla. 1998).  In 2009 a court found that the new employer had knowledge of the non-compete agreement with the plaintiff because it “expressly acknowledged the existence of that agreement in the employment contract signed with [the employee].”  The result: an opinion that the plaintiff had “shown a substantial likelihood of success on the merits of its claim that [the new employer] tortiously interfered with the . . . contract for [the employee] not to compete with [plaintiff].”  See The Continental Group, Inc. v. KW Property Management, LLC (S.D. Fla. 2009).

Similar findings appear in Florida appellate courts.  In 2010, Florida’s First District Court of Appeal held that allegations that 1) the employee gave a copy of the plaintiff’s employment contract to the new employer and; 2) that the new employer “devised a plan to allow [the employee] to quit her employment with [the plaintiff] and to . . . work for [the new employer] . . . without compensating [the plaintiff] as required under [the contract]” stated a cause of action for tortious interference against the subsequent employer.  See  Southeastern Integrated Medical, P.L. v. North Florida Women’s Physicians, P.A. (Fla. 1st DCA 2010).

What now?  Well, if you’re subject to a non-compete agreement, read it carefully.  They are often narrowly tailored.  As we discussed in previous posts, even valid non-compete agreements can prove ineffective to stop future competition.  On the other hand, because Florida allows non-compete agreements, it is important to understand the restrictions of a particular agreement and the risks of violating it.  Do you have the right to employ someone seemingly subject to a valid non-compete agreement?  Of course you do.  Just keep in mind that knowingly hiring someone subject to a non-compete agreement can result not only in additional legal fees and costs resulting from the employee’s breach, it may also subject the new employer to substantial damages resulting from a claim for tortious interference with the former employer/employee relationship.  Remember that courts have determined that prima facie evidence of tortious interference exists when a subsequent employer agrees to indemnify the new employee and/or pay defense costs if the former employer files an enforcement lawsuit.

This is the part of the blog where we suggest you seek competent legal counsel when you face these issues.  The nuances of this area of the law and the specific factual circumstances surrounding each situation deserve a sound initial legal opinion. Our Burr & Forman attorneys would be happy to assist you in these matters.