A recent decision in Denver District Court, Business Network Consulting v. Perkins, demonstrates the risks taken by aggressive employers when they seek to impose restrictions on a former employee that aren’t set forth in any written agreement.
BNC, a computer consulting company, sprung into action when it learned that one of its customers had offered a job to its former employee, Perkins. BNC contacted its customer and threatened litigation even though the customer had never signed BNC’s form contract that barred customers from hiring BNC’s employees for a limited time after an employee left BNC. Reluctant to get involved in litigation, the customer conferred with Perkins about BNC’s threats and Perkins elected not to go to work for the customer. The customer then reached a settlement with BNC under which the customer disclosed its communications with the employee and agreed not to employ Perkins for several years.
BNC was not satisfied with the settlement, however. It filed suit against its former employee and alleged that he had breached his nondisclosure and nonsolicitation agreement by disclosing information to a competitor, performing work for a client, and failing to tell a prospective employer about his nondisclosure and nonsolictation obligations. Based on the language in the nondisclosure/nonsolicitation agreement, however, Judge Brody rejected BNC’s claims. Among other things, she found that the supposedly confidential information was not truly confidential. She also found that Perkins didn’t have a duty of disclosure because he had worked as an independent contractor rather than as an employee. Those findings are not surprising and appear to be amply supported by the facts.
What’s striking about the decision is that Perkins prevailed on his claim for tortious interference with prospective business advantage. Judge Brody found that BNC had caused Perkins to lose his new job with BNC’s customer by threatening unfounded litigation and by telling the new employer that the new job would be a breach of Perkins’ nondisclosure and nonsolicitation agreement as well as the client’s alleged agreement with BNC. These representations were false because BNC knew that it didn’t have a written agreement with the new employer that barred the new employer from hiring Perkins. BNC also knew that its agreement with Perkins did not bar Perkins from working for the new company. BNC knew that this representation was false because it had tried to get Perkins to sign a new noncompete agreement with more onerous restrictions but Perkins had declined to sign the new agreement. Under its agreement with Perkins, BNC at best had the right to recover liquidated damages to BNC if Perkins went to work for the new company. Tellingly, Judge Brody found that BNC’s conduct constituted a restraint of trade – that is, “Perkins’ ability to earn a living”. Perkins had the right to work for the new company and the new company had the right to hire him.
Perkins victory was not just symbolic. The Court awarded over $100,000 in economic damages to Perkins on the tortious interference claim, $10,000 for emotional distress and mental suffering and $30,000 in punitive damages. In awarding punitive damages, the Court found that the amount was a “figure that will deter BNC from ignoring its own agreements, engaging in bullying tactics without basis, and interfering with its employees’ right to earn a living.” Subsequently, the Court awarded over $90,000 in attorneys fees to Perkins.
There is a lot to learn from this case. Even though noncompetes are disfavored in Colorado, employers have the upper hand when it comes to noncompetes. Employers draft the agreements and employees sign the agreements without thought when they are first hired.When it comes time to enforce an agreement, employers typically have a lawyer and the money to pursue their claims. These advantages can make employers overconfident, however, and cause them to make unreasonable demands that seek relief not provided in any written agreement. When that happens, this case demonstrates that there are remedies available to the former employee.
This case is on appeal. Briefs have not yet been filed, and it will be months before the Court of Appeals enters its decision. Among other things, the Court of Appeals may need to decide when an employer’s prosecution of an unenforceable noncompete goes too far and becomes the basis for a claim for tortious interference with contract.