Companies in competitive niche industries use non-compete agreements and other forms of restrictive covenant agreements to protect their trade secrets and limit the ability of their employees to work for a competitor. But what happens when one competitor aggressively recruits employees from another? Can those efforts be so targeted and intense that they give rise to a claim of unfair competition? No, ruled SDNY Judge Paul Crotty in Creative Circle v. Susan Norelle Bortone, et. al., SDNY Case No 18:7333.
24 Seven Inc. is an international staffing and executive search company in the creative space, and long-term client of HNRK. The company has a handful of direct competitors, one of which is California-based Creative Circle LLC (“CC”). For 12 years, CC employed Sue Bortone in its New York office as a lead account executive engaged in sales and customer relations and development. Over the years, Bortone had been promoted several times and proven herself to be a significant revenue generator and a terrific colleague. While at CC, Bortone, consistent with standard operating procedures, signed a restrictive covenant agreement containing the usual combination of non-compete, non-solicitation, and confidentiality provisions. The agreement precluded Bortone from working for a competitor within 50 miles of CC’s New York office, and soliciting CC clients for one year.
In the spring of 2018, Bortone, having been passed over for promotion while she was on maternity leave, decided it was time to move on. Having been contacted in the past by recruiters for 24 Seven, Bortone indicated interest. Interviews, negotiations, and an offer of employment followed. To avoid running afoul of her non-compete, 24 Seven hired Bortone as its new national director of training; a position in which she would not engage in sales, call on her former clients, or have any reason to use whatever CC trade secrets remained in her memory.
Incensed that Bortone resigned in order to work at 24 Seven, and claiming that “Creative Circle had good reason to believe that the training title 24 Seven created for Bortone is just a ‘front’ and that she ‘unquestionably was hired for her sales experience and client contacts,’” CC sued 24 Seven in the SDNY using the federal Defend Trade Secrets Act (DTSA) as a hook to obtain federal jurisdiction. It alleged, among other things, breach of contract, civil conspiracy, tortious interference with contract, and misappropriation of trade secrets under the DTSA. An additional aspect of CC’s claim was that:
24 Seven has been engaged in a prolific and deliberate attempt to raid Creative Circle’s employees. Bortone is just one such example, but there are many others. 24 Seven and its Recruiters are specifically targeting key employees of Creative Circle, such as Bortone, who they know are the most successful employees…in hopes of facilitating a mass exodus of employees from Creative Circle to 24 Seven.
CC sought emergency injunctive relief, damages, and a permanent injunction.
During a two-and-a-half-day preliminary injunction hearing, 24 Seven admitted, for it had nothing to hide, that its in-house recruiters often try to recruit CC employees. Just as, it stated, many of its employees are recruited by yet other staffing companies. After all, CC is a natural source of recruits. The company is in the same business, its employees are well-trained, they know the industry, and the company is well-regarded. Most of the recruiting is done via LinkedIn Recruiter, and can result in CC employees getting multiple emails from 24 Seven suggesting, in essence, that there are greener pastures elsewhere.
Over the years, 24 Seven’s efforts bore little fruit; indeed, it was able to recruit just a handful of recruits over several years. That said, 24 Seven has experienced success in the marketplace and has grown considerably. Landing Bortone really irked CC, and it filed the instant lawsuit in an effort to shut down 24 Seven’s recruiting efforts and to sideline Bortone. That effort was totally misguided and failed miserably. First, CC admitted on cross-examination that it had no evidence that Bortone misappropriated its trade secrets, only that it felt their disclosure would be “inevitable.” This admission was significant in that nullified its DTSA claim, which at its core, requires that a trade secret be acquired by “improper means” and eliminated the court’s jurisdiction.
Second, the court refused to enforce, in whole or in part, the non-compete provisions of Bortone’s employment agreement because such agreements will only be enforced “to the extent that the covenant is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee.” AM Medica Commc'ns Group v. Kilgallen, 261 F. Supp. 2d 258, 262 (SDNY 2003). The court found no subterfuge in 24 Seven’s hiring Bortone into a training provision, no theft of trade secrets, nor any risk of inevitable disclosure. Moreover, since Bortone would be not be calling on CC customers or engaged in sales and therefore trading on her CC contacts or interfering with CC customer relations, it found it unnecessary to enforce her non-compete because there were no enforceable interests that needed protection.
Third, with regards to the claim that 24 Seven excessively recruited CC’s employees, the court found that there is no such cause of action. “Plaintiff submits that 24 Seven has inundated Creative Circle with a barrage of recruiting communications, but there is nothing wrong with recruiting from competitors, which Creative Circle knows given that it is in the staffing business.” Thus, CC’s efforts to keep 24 Seven at bay via litigation failed miserably and worse, its failure will likely embolden its competitors.
While restrictive covenants and the DTSA can be powerful tools to protect a company’s trade secrets, market share, and dissuade others from recruiting its executives, shooting first and asking questions later is not the best policy when initiating restrictive covenant and unfair competition litigation against a competitor.
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