In April, 2016, two long haul carriers became embroiled in a $90,000,000 lawsuit where one carrier alleged that the other carrier actively recruited and hired drivers who were bound under its employment contracts. Specifically, Carrier A’s employment contracts prohibited it’s drivers from working for competitors for a specified amount of time. Carrier A asserted that Carrier B was poaching it’s employees and set forth claims against Carrier B for (1) intentional interference with contract, (2) intentional interference with prospective economic advantage and (3) unjust enrichment arising out of alleged poaching of it’s drivers. Carrier B denied liability on all claims and raised thirty-six affirmative defenses.
At its core, the lawsuit alleged that Carrier A developed a driver training program (DTP) through which it financed driver CDL training up front. In exchange, job candidates agreed to exclusively work for Carrier A for a period of time after they acquired their CDL. Job applicants were required to repay the advanced cost of the DTP whether or not they were hired by Carrier A, were fired by Carrier A or if they voluntarily withdrew from the program. Carrier B, on the other hand, recruited drivers who already had a CDL, but offered a tuition reimbursement program. All told, Carrier A cited to over 100 cases where Carrier B hired it’s contractually bound drivers, each of those drivers having left Carrier A before the end of their respective Restricted Terms.
Whether or not non-compete agreements in employment contracts are enforceable largely depends on the jurisdiction in which the agreement is entered – state law varies significantly on the topic. At least 10 states have passed laws limiting employers’ ability to impose noncompete agreements on their employees. Many of these laws, including those passed in Illinois, Maine, Maryland, Massachusetts, New Hampshire, Oregon, Rhode Island, and Washington, prohibit noncompete agreements or make them unenforceable for certain lower income brackets. However, the state of Washington bars noncompete agreements for any worker earning up to $100,000 each year. Other states limit use of noncompete agreements for certain professions. State law may also vary in the amount of time a noncompete agreement may be in effect and whether an employer has to pay workers while a noncompete agreement is in effect. California takes the position that noncompete agreements are unenforceable.
In July, 2018, a United States District Court vindicated Carrier B. Although the law of the jurisdiction did not preclude noncompete agreements, the Court held that Carrier B did not interfere with Carrier A’s employment contracts and dismissed each of Carrier A’s claims with prejudice. Carrier A appealed to the U.S. Circuit Court of Appeals.
In a recent, 2-1 split decision, the U.S. Circuit Court of Appeals reversed the District Court’s July, 2018 order granting summary judgment to Carrier B and against Carrier A, and remanded the case for further consideration.
Writing for the majority, the Judge opined that the district court committed an error when it granted Carrier B’s motion for summary judgment on claims of intentional interference with Carrier A’s employment contracts. Rather, the majority stated that Carrier B’s “inducement by offer of better terms,” i.e., offering higher pay, caused some drivers to breach their noncompete agreement with Carrier A. The majority opinion stated that Carrier B knowingly recruited and hired long-haul truck drivers, who had completed Carrier A’s driver training program to obtain their commercial driver’s licenses (CDLs) but were contractually obligated to work for the motor carrier so Carrier A could recoup its training school costs.
The Judge also stated that the district court erred in granting Carrier B’s motion for summary judgment on Carrier A’s unjust-enrichment claim. In the majority’s opinion, Carrier B was purposefully availing itself to Carrier A-trained drivers, which were less expensive to employ than drivers who have not been trained by Carrier A. The Court also found that Carrier B received the benefit of drivers who were trained at Carrier A’s expense.
The lone dissent in the case indicated that there was a dearth of evidence to suggest that Carrier B’s recruiting efforts were aimed at anything more nefarious than finding qualified drivers or that Carrier B’s encouraged Carrier A’s drivers to breach their non-compete agreements.
The case has been remanded to the federal court for a trial on the merits of the issues. All told, the message here is that due diligence and inquiry should be undertaken prior to making employment decisions, to ascertain whether a prospective new-hire is in violation of any contractual limitations that may have been imposed by a noncompete agreement. Should you have any questions regarding hiring protocol, please feel free to contact Benjamin Dill (firstname.lastname@example.org) at 804-377-1272 or Steve Setliff (email@example.com) at 804-377-1261.