Classes from a Staffing Misappropriation and Non-Compete Trial |  Seyfarth Shaw

Classes from a Staffing Misappropriation and Non-Compete Trial | Seyfarth Shaw

Instances do not strive fairly often. Doubly so in commerce secret/non-compete litigation. So many of those disputes get resolved on the injunctive reduction section of the proceedings that, when one goes the space, it’s virtually all the time price peeking beneath the hood.

in MWK Recruiting, Inc. v. Jowers, No. 1:18-cv-444-RP (WD Tex.), a federal district courtroom choose lately entered a judgment for $3.6 million—earlier than charges and prices—towards a former exterior legislation agency recruiter. The info should not advanced. A recruiter left his employer and joined a competitor. However earlier than the recruiter left his former employer, he started utilizing his private electronic mail for candidate submissions and allegedly laundered six lateral candidates via the founding father of his new employer. His former employer sued him and alleged that he misappropriated commerce secrets and techniques and breached non-compete and non-solicitation covenants in his employment settlement. At trial, the district choose discovered within the plaintiff/employer’s favor on each claims and entered a $3.6 million damages award, with about $500,000 awarded beneath the misappropriation declare and $3 million beneath the breach of contract declare.

Three facets of the order piqued my curiosity. First, this was a bench trial—not a jury trial. As we’ve got beforehand blogged, choosing a bench trial is perhaps extra advantageous, relying on the info of the dispute. This case is an efficient instance of a case the place a choose is perhaps preferable to a jury, as there isn’t a instantly obvious avenue for a blockbuster damages discovering, and a district courtroom choose won’t shrink from imposing a big judgment.

Second, the district courtroom can simply discover the data the recruiter collected about purchasers and potential purchasers certified as a commerce secret beneath Texas legislation. The courtroom particularly discovered that the candidates’ names, purchasers, guide values, language abilities, targets for switching corporations, and their legislation faculty data constituted commerce secrets and techniques. The district courtroom emphasised the recruiter’s testimony that candidates anticipated their info to be stored confidential and that different recruiters couldn’t merely study this info and monetize the data.

Third, the district courtroom awarded the quantity of placement charges that the recruiter obtained as damages for breach of contract. The one purpose the district courtroom might accomplish that is as a result of this settlement included a liquidated damages provision. Usually, disgorgement-type damages should not out there for a breach of contract. As a substitute, the basic contractual treatment for such a breach is expectation damages—the misplaced revenue that the employer would have obtained had the breach not occurred. This employer requested and obtained extra as a result of this settlement included a liquidated damages provision. That provision reads as follows:

9.1 The precise damages ensuing from violation of Sections 7 and/or 8 of this Settlement by the Worker will probably be troublesome or unimaginable to determine. Within the occasion of such a violation, the Worker shall pay the Firm, upon demand, as liquidated damages, and never as a penalty, the next:

9.1.1 Any payment paid for companies rendered in violation of Sections 7 and/or 8, whether or not paid to the Worker or to another particular person, agency or entity; plus

9.1.2 All prices and bills, together with affordable lawyer’s charges, incurred by the Firm within the enforcement of its rights referring to such violation.

In my opinion, this liquidated damages provision functionally creates a disgorgement treatment for a breach of contract declare. The profit to doing so is that, in contrast to a traditional misplaced revenue damages exhibiting, the previous employer didn’t want to point out that the previous employer would have made the identical placement. As a substitute, the previous employer met its damages exhibiting by establishing (1) a violation of a covenant and (2) receipt of charges by the recruiter in reference to that breach. Consequently, the previous employer might make a simple exhibiting primarily based solely off exercise by the recruiter without having to show up its skill to seal the position.

If this strategy sounds too good to be true, it is perhaps. Usually, a liquidated damages provision could be challenged on the premise that it was an unenforceable penalty clause fairly than a liquidated damages provision. Whereas the precise necessities range from state to state, most states will implement liquidated damages in a contract provided that precise damages are troublesome to calculate or not simply ascertainable and when the quantity is an inexpensive estimate of the damages that may outcome. However right here, the recruiter waived his skill to problem the enforceability of the liquidated damages provision.

Implementing a liquidated damages provision would possibly make a injury exhibiting simpler, however it will very doubtless draw an objection as a penalty clause in ensuing litigation. So any employer contemplating whether or not so as to add a liquidated damages provision to a restrictive covenant settlement ought to critically study the legislation within the related jurisdictions earlier than revising its type of a restrictive covenant settlement.

General, the choice and judgment supplies a powerful reminder that pre-employment dangerous acts decided by a trial of truth can generate materials legal responsibility and that candidate info could also be considered not solely as confidential info, but additionally even attain the extent of a commerce secret if a ample exhibiting is made. And the choice supplies an intriguing take a look at the advantages of a liquidated damages provision—though any reader must also pay attention to the related dangers.

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