Co-authored by: Zach Glaser and Gabe Celii
When it comes to employee mobility, a common misconception is that an employee who has not entered into a restrictive covenant, e.g., a non-compete and/or non-solicitation agreement, is free to act in direct competition with its current employer without any repercussions. While that may be generally true with respect to conduct after an employee has been terminated, Pennsylvania Courts have routinely found a common law duty of loyalty exists while one is still employed by the business with which they are seeking to compete.
This duty of loyalty was examined and enforced in a recent decision by the Pennsylvania Superior Court in AmQuip Crane Rental, LLC v. Crane & Rig Servs., LLC, 2018 PA Super 315 (Nov. 2018). AmQuip Crane Rental, LLC and Maxim Crane Works, L.P. (“AmQuip”) merged in 2016 to form one of the largest crane companies in the world, with approximately $700M in annual revenue, with a fleet of over 1,200 cranes and principal places of business in Trevose and Bridgeville, Pennsylvania. AmQuip’s competitor, defendant ACrane, is a startup with only 45 cranes. The four individual defendants joined AmQuip between 2008 and 2013 and worked in AmQuip’s Atlanta office. Three of the four had signed employment agreements containing non-competition, non-solicitation and confidentiality covenants and an employee handbook containing a confidentiality policy, but one of them had only signed the handbook. All four of the individuals assisted in setting up the new competing business while still employed by AmQuip. In October 2016, the individuals left AmQuip to start working for ACrane and litigation was commenced by AmQuip. A motion for a preliminary injunction was subsequently filed.
The trial court determined that all four individuals had taken affirmative action to divert AmQuip clients to the startup, ACrane, directly competing with AmQuip while still under its employ. The employee-defendants emailed AmQuip’s largest clients telling them that AmQuip, because of its recent merger, could no longer provide the same level of customer service that it had in the past, and instead instructed the clients to hire ACrane. In February 2017, the trial court enjoined the individuals from competing, soliciting and using AmQuip’s confidential information.
On appeal, the individual that had not signed an employment agreement with AmQuip argued that he should not be subject to the injunction. The Superior Court affirmed the injunction however, noting that his type of pre-separation behavior by an employee, and even the aiding of such behavior by individuals subject to the restrictive covenants, was determined to violate an employee’s common law duty of loyalty to the employer. Moreover, the employees were using information designated and protected as “confidential”, such as certain pricing schemes, to drive profits away from their employer and towards the new company. Ultimately, the Court found such conduct warranted a preliminary injunction against the individual even though he was not bound by the contractual restrictive covenants.
The other three individual defendants argued on appeal that they should not be bound by the contractual restrictive covenants based on the balancing test articulated in Hess v. Gebhard & Co., Inc. 808 A.2d 912 (Pa. 1988), which requires a trial court to balance the protectable interests of the employer against the employee’s interest in earning a living in his or her chosen occupation and the public’s interest. Specifically, these three individuals asserted that the harm to a giant industry leader like AmQuip was miniscule when compared to difficulties they would have finding new employment in the crane rental industry. This argument was rejected by the Superior Court, which noted that such a rule would frustrate large employers who have substantial interests in safeguarding against employees who would be free to betray them with impunity.
When dealing with issues of employee mobility, such as restrictive covenants and the protection of trade secrets and other confidential information, employers should be aware of all potential avenues of recourse, whether a non-compete / non-solicitation agreement exists or not. This starts with obtaining advice from experienced employment law counsel.
ABOUT ZACH GLASER
firstname.lastname@example.org | 267.338.1315
Zach Glaser, Chair of the Labor & Employment practice group, is also the head of the newly formed Employee Mobility practice at Offit Kurman. This specific practice consists of over 50 attorneys with Intellectual Property, Labor & Employment and Commercial Litigation backgrounds. This unique combination of attorneys in a group practice equip the firm to assist in both common and complex employee mobility legal issues. Zach’s broad litigation experience includes complex commercial matters, business torts, employment litigation and intellectual property disputes, including contract claims, defending employment discrimination claims, the enforcement of non-competition and non-solicitation agreements, federal and state unfair competition claims, defense of Fair Labor Standards Act claims, franchise and distribution disputes, lender liability and FINRA matters, professional negligence and medical malpractice defense, and all manners of intellectual property litigation, including trade secret matters, Computer Fraud and Abuse Act cases, e-commerce, trademarks, copyrights and patent litigation.
ABOUT GABRIEL CELII
email@example.com | 267.338.1361
Gabriel Celii is a Labor & Employment attorney who is also a part of the newly formed Employee Mobility practice at Offit Kurman. Gabe devotes his practice to representing businesses and municipal entities navigating labor and employment disputes ranging from wage and hour litigation and work place discrimination defense to labor negotiations and the resolution of grievances. During his representation of Philadelphia-area Townships and Counties, he has successfully defended claims brought against public officials and advised municipalities on the drafting of local ordinances, such as Police Pension DROP amendments.
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