In a very thorough analysis following a 3 day Preliminary Injunction hearing Judge Jed Rakoff declined to issue injunctive relief to a former employer seeking to enjoin four former employees and their new employer from competing or from soliciting clients or employees. The decision is far ranging in the employee movement context touching upon inadvertent retention of confidential information, the propriety of new employers providing broad indemnifications and large signing bonuses to the recruits, and the scope of allowable “preparatory conduct” in a one year non-compete period, among other issues presented in the context of a group of employees in the eDiscovery services space collectively on the move.
Four senior sales executives of plaintiff Document Technologies Inc (“DTI”) collectively decided to leave DTI and signed new employment agreements with LDiscovery. LDiscovery provided the four with agreements that indemnified them from claims of improper conduct by DTI as well as significant signing bonuses to make up for lost compensation during the one year non-compete period they agreed to abide by. The Court found nothing wrong with these agreements and also that accepting employment and engaging in preparatory meetings and analysis of the marketplace were permissible preparatory acts and do not violate the non-competition prohibitions in their agreements with DTI. The Court also found that there was no breach of the employee non-solicit where the four employees coordinated their job search since they had each individually resolved to leave DTI in advance of coming together. Collectively reaching the conclusion to seek alternative employment was found not to be a breach of the employee non-solicit provisions each had in their agreement with DTI. The Court was skeptical that where the employees were all “at will” versus subject to a term contract, that the three prong test of enforceability under BDO Seidman could be met. The fact that they marketed themselves as a “package” deal was not unfair competition supporting a finding of breach. Similarly, LDiscovery could not be held liable for tortious interference by recruiting the team, providing them with signing bonuses and by indemnifying them.
This decision provides a good framework for legal analysis when determining the propriety of a team move and whether certain conduct of the employees and their new employer warrant injunctive relief.