Colorado Non-Compete Law Blog : Denver Non-Compete Lawyer & Attorney : Dan Warden : Bond & Morris Law Firm : Adams County, Brighton, Aurora, Bow Mar, Lakeside

No hire or no switching clauses are agreements between companies under which one or more companies agree not to hire employees of another company.

No hire clauses are common in a variety of situations. If a company is seeking to be acquired, for example, it may want to showcase its best or key employees to the potential purchaser. If the acquisition doesn't occur, however, the seller may be concerned that the potential purchaser will seek to hire its best employees. No hire clauses are also used when one company provides temporary employees to another company.  The supplier of the temporary workers will seek a no hire agreement from its customer to prevent its customer from directly hiring the temporary workers.

In a case, Haines v. VeriMed Healthcare Network, decided earlier this year by the federal district court in Missouri, the court dismissed an employee's antitrust challenge to a no hire clause. Haines was a doctor who supplied "written content for publication on medical websites" to VeriMed. VeriMed didn't publish the content itself, but instead acted as a middleman and sold the "written content" to others who published the content on websites. Haines also developed a relationship with THCN which actually published content. THCN had an agreement with VeriMed, however, under which it agreed not to hire VeriMed's contractors unless it paid VeriMed an agreed upon amount. When THCN learned that Haines was a VeriMed contractor, it terminated its relationship with Haines.

Haines filed suit against VeriMed and alleged that the no hire agreement was a violation of federal and state antitrust laws. After acknowledging that courts have found no hire clauses to violate or potentially violate antitrust laws, the court ruled that Haines's agreement was not the kind of no hire provision which violated antitrust laws. The no hire clause, according to the court, did not violate antitrust laws because it was limited in specific ways that narrowly tailored the agreement to protect VeriMed's legitimate business interests.

Antitrust challenges to no hire clauses have had mixed success depending on the facts of the  cases. Challenges have also been made based on state non-compete statutes, including a successful challenge in Wisconsin in 2002. We are not aware of any Colorado appellate decisions on no hire or no switching clauses. Depending on the nature and scope of the no hire provision, there is reason to think that a successful challenge could be brought in Colorado. In evaluating the nature of any challenge presented, the remedies available need to be considered.

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We pleased to let you know that the Colorado Non-Compete Law Blog was included on the Delaware Employment Law Blog's annual list of the hundred best employment law blogs.

We've included the Delaware Employment Law Blog on our Relevant Blogs section in the left hand margin. The list of the best employment law blogs was included in a November 4 entry -- we've been slow to acknowledge our inclusion. The Delaware Law Blog is a great resource for anyone interested in employment law issues. 

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As reflected in the Wyoming Supreme Court's recent decision in CBM Geosolutions v. Gas Sensing Technology Corp, Wyoming's law on non-competes differs substantially from Colorado's. 

Colorado has adopted a statute which voids any non-compete unless it falls within one of the four designated exceptions.  Every case, as a result, begins with an analysis of whether the non-compete falls within one of the exceptions. If the non-compete does not, the non-compete can not be enforced and there is no need to evaluate whether the non-compete's duration and area are reasonable.

In Wyoming, on the other hand, no such statute has been adopted. There is no discussion, as there is in Colorado cases, of whether a non-compete falls within the definition of statutory terms. There are no cases, for example, about whether a non-compete was entered by someone who falls within the definition of "executive and management personnel".

There are a few preliminary hurdles to consider in Wyoming, including whether consideration exists and whether the non-compete was in writing. If these hurdles are surmounted, as they are in most cases, the remaining analysis revolves around whether the non-compete is "reasonable". As in most if not all states, this reasonableness analysis requires consideration of the duration and geographic area of the non-compete.

Reasonableness in Wyoming, however, also requires consideration of a series of other factors. These factors include  the degree in inequality in bargaining power, the risk of the business losing customers, the good faith of the employee, knowledge related to the identity of customers, the employee's position with the business, the employee's training, education and the "needs of his family", the current conditions of employment and the need to protect the legitimate interests of the business. This part of the reasonableness analysis allows a court to consider virtually any factor that might be important under the individual facts presented by a case.  

In short, the two states have adopted different approaches to non-competes. Whether the different approaches result in different decisions may be addressed in future blog posts. For a party subject to a non-compete in either state, however, it is important to recognize that different approaches have been adopted and that the different approaches may mean that different strategies are required. 

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We recently wrote about the Tenth Circuit's September, 2009 decision in Southwest Stainless v. Sappington, but the decision is worth another look. An issue presented by Southwest Stainless was whether a price quote was a a trade secret. Southwest claimed that a price quote was and asserted a claim for misappropriation of trade secret.

The defendant, a former employee of Stainless, apparently set the price that Stainless quoted to Hughes Aircraft. After the employee left Stainless and went to work for a competitor, Hughes Aircraft placed an order with the new employer at a price slightly less than Stainless' quote. If Hughes Aircraft had selected Stainless' quote, Stainless would have earned $31,200 in profit.

The trial court held that the Hughes Aircraft quote was a trade secret. It emphasized all the measures that Stainless took generally to keep its pricing information confidential, including requiring confidentiality agreements, reminding employees of the confidential nature of company information and using passwords to restrict access to information. 

Despite these measures, the Tenth Circut held that the the price quote was not a trade secret for one reason. It wasn't a secret.

Some customers were allowed to know prices on certain items in advance. Furthermore, Stainless did not prevent its customers from disclosing pricing information to others. In other words, the pricing quote was known outside of Stainless (i.e. by Hughes, among others), Stainless took no measures to prevent Hughes from disseminating the information and the former employee could have obtained the price quote simply by calling Hughes.

In contrast, the Colorado Court of Appeals in 2001 affirmed a judgment which held that a contractor's bid for construction work was a trade secret. In that case, the contractor had submitted a bid for work. The former employee also submitted a bid and his bid was accepted. At trial, the jury found that the bid information was a trade secret and that the former employee had misappropriated the bid information. That judgment was affirmed on appeal despite the former employee's claim that the bid information was not a trade secret as a matter of law. 

In this Court of Appeals case, there was no suggestion that the bid could have been obtained by the former employee if he had contacted the party to whom the bid had been submitted. That distinction may help explain the differning results in the two cases.

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