When an Employee Serves Two Masters

An interesting case arose out of the Middle District of Tennessee, which explored the overlapping claims involving an employer suing some of its former employees for trade secret misappropriation, breach of the duty of good faith and loyalty, and civil conspiracy. In Ram Tool & Supply Company, Inc. v. HD Supply Construction LTD., et al., the court allowed the common law claims of breach of duty of good faith/loyalty and civil conspiracy to survive the former employees' motion for summary judgment, notwithstanding the preemption of factually similar claims by the Tennessee Uniform Trade Secrets Act.

The facts appear quite colorful. Briefly, two businesses (Ram Tool & Supply and White Cap Construction Supply) compete in the construction tools and materials distribution industry. Ram Tool had a sales team in Nashville. White Cap didn't, but planned on opening one. Ram Tool alleged that over a period of about six months, White Cap targeted Ram Tool's Nashville manager, who agreed to move over to White Cap. While still employed with Ram Tool, the Nashville manager heavily recruited other Ram Tool employees; negotiated the hiring of Ram Tool employees for White Cap, while the manager was still on the Ram Tool payroll; and identified himself as the White Cap branch manager on White Cap letterhead while still employed by Ram Tool. To add insult to injury, on his last day of employment with Ram Tool, the Nashville manager received an order at Ram Tool, which he promptly forwarded to his new White Cap team calling it the "first order".

None of the Ram Tool employees were bound by any non-compete agreements or non-solicitation agreements. Rather, the claims against them were brought under common law theories that apply to all employees.

The court did not reach the merits of the dispute or opine on fault as the matter must still be tried to conclusion. Instead, the case dealt with the legal ruling of whether the Tennessee Uniform Trade Secrets Act precluded all of the common law claims, as is often the result. The court said no – the common law claims (i.e. breach of duty of loyalty, etc.) survived as the facts supporting those claims did not involve any alleged trade secret theft. In other words, the former Nashville manager and others, have quite the uphill battle to tread as they attempt to defeat of multiple claims being levied against them.

Situations involving employee dishonesty and switching over to competitors, both with and without non-compete agreements, often result in contentious litigation. And, as shown by this case, require a solid understanding of the interplay of the various overlapping claims.

Confidentiality and Non-Solicitation Agreements

At the outset of new employment, an employer requires that new employees sign a series of documents. Many of these are required government forms. However, some employers who are in highly competitive industries present their new hires with confidentiality and/or non-solicitation agreements. Generally, a confidentiality agreement precludes an employee from sharing what he or she learned on the job after departing (e.g. trade secrets, formulations, software programs, etc.). A non-solicitation agreement on the other hand, generally precludes a departed employee from seeking out his or her former employer's customers or current employees. Both documents are frequently litigated.
The recent appellate case of Healthcare Horizons, Inc. v. James Brooks is illustrative of such litigation. Healthcare Horizons was the employer of two former employees, James Brooks and John Graham. Both Brooks and Graham signed similar confidentiality and non-solicitation agreements, but the documents varied in one material way – the Graham agreements had a binding arbitration clause over all claims and the Brooks agreements had a binding arbitration clause over only some claims. After Graham and Brooks left Healthcare Horizons, they worked for a new employee, which was a direct competitor.
Healthcare Horizons sued only Brooks for violation of the confidentiality and non-solicitation agreements, and included claims which removed the lawsuit from the arbitration requirement. For reasons unknown, Brooks preferred arbitration as opposed to litigation. Brooks attempted to invoke the arbitration clause that Graham signed, not Brooks. Both the trial court and the court of appeals found that Brooks could not rely on the Graham agreements to compel arbitration. Instead, the Brooks lawsuit would proceed in court.
Of note for employers is remembering that one size doesn't always fit all and the perpetual reusing of the same set of documents over and over without reexamination of whether the documents still fit, is ill advised. Employees, on the other hand, should be cognizant of understanding what they agree to when commencing new employment and attempt to negotiate out undesired terms. Competent counsel can help in both regards.

When Not Hiring Someone Results in a Lawsuit

Tennessee, like many states, recognize employment at will – either the employee or the employer may terminate the employment with or without cause, so long as the firing doesn't fall within a public policy or statutory exception. One such exception prevents an employer from firing an employee simply because the employee filed a workers' compensation claim.
What happens when a prospective employer refuses to hire an applicant for the stated reason that the applicant filed a workers' compensation claim with her former employer. A hospital cleaning company in Lebanon, Tennessee recently found out when Kighwaunda Yardley sued it for failing to hire her. Ms. Yardley acknowledged that Tennessee law didn't currently permit such a suit, but argued instead that the Court should create such a law based on public policy grounds. She argued that the absence of this private cause of action would have a chilling effect on employees who were afraid of filing workers' compensation claims.
The Tennessee Supreme Court disagreed with Ms. Yardley, holding that "a job applicant does not have a cause of action under the Tennessee Workers’ Compensation Act against a prospective employer for failure to hire if the prospective employer refused to hire the job applicant because that applicant had filed, or is likely to file, a workers’ compensation claim against a previous employer." In other words, the Court told Ms. Yardley that she couldn’t sue for not being hired.
Surprisingly, the Court noted that several states including Florida, Illinois, Louisiana, Maine, and Massachusetts have statutory provisions expressly allowing claims for "retaliatory failure to hire." Maybe had Ms. Yardley not been hired in one of these other states she would have a claim. But, not so in Tennessee.
Employment issues such as hiring and firing implicate numerous state and federal laws and are often ripe with litigation. Employers need to guard against such litigation by making sure that they understand their obligations, while employees who have been wrongfully terminated may find that their rights were in fact violated. But, not so for Ms. Yardley.