In Acclaim Systems, Inc. v. Infosys, the U.S. Court of Appeals for the Third Circuit recently rejected a claim for tortious interference with a non-compete, because the plaintiff introduced no evidence of actual knowledge that the individuals in question were covered by non-competes.
Infosys, an IT services company, bid on a job from Time Warner Cable (“TWC”) that had been serviced by a competitor, Acclaim. TWC decided to transfer the project over to Infosys, but wanted Infosys to hire four contractors who previously worked with Acclaim on the project.
Infosys acceded to TWC’s request, but first reached out to the contractors to inquire about any possible non-competes in their contracts with Acclaim. One contractor affirmatively stated in an email, “I do not have a non-compete clause with Acclaim.” That same contractor also represented on an employment application that he did not have any contractual restrictions, including non-compete covenants. The other three contractors verbally represented that they were not subject to any non-compete agreements, and their subcontractor employer, when asked, also did not inform Infosys of any non-compete. In fact, all four contractors had non-competes in their contracts with Acclaim.
Acclaim filed suit against Infosys for tortious interference with these non-competes (i.e., intentional interference with contract). The District Court granted summary judgment to Infosys.
The Court of Appeals found that to have “intent” to harm a contractual relationship, a party must have knowledge of that relationship. Here, the Court found that Infosys did not have knowledge of the non-competes, so it could not have had the intent necessary to commit tortious interference. Acclaim argued, based on circumstantial evidence and the industry custom of non-competes in IT services, that the existence of the non-competes could be inferred. Acclaim also argued that by asking the contractors themselves, Infosys did not ask the correct parties and instead should have asked the subcontracting employers. Acclaim alleged that Infosys conducted a “sham” due diligence process such that it was willfully blind to the existence of the non-competes.
The Court of Appeals found that by asking multiple times about the non-competes, Infosys could not be held to be “willfully blind,” and further found that Acclaim’s arguments regarding asking questions to the wrong party were an improper attempt to imposed a negligence standard of care on an intentional tort.
This case shows that when onboarding employees, companies should exercise due diligence in ascertaining the existence of a possible non-compete. Steps that can be taken as part of such due diligence include having counsel review any existing contracts to which a potential new hire is subject and having potential hires and contractors sign certifications regarding the existence of non-competes or other contractual restrictions on their ability to perform the duties of their proposed new position.