What is the first thing a lawyer looks for when a client wants to enforce a non-compete agreement? What is the first thing a lawyer hopes not to find when a client is the subject of a non-competition demand letter or lawsuit? Bad facts. Did the employee take confidential information belonging to the former employer? Did the employee contact customers of the former employer and solicit them for the prospective employer before leaving the former employer? If the employee was an executive or owed a fiduciary duty to the former employer, did the employee solicit other employees to leave with her? If the employee did any of these things, did the employee try to cover it up? Bad facts! The plaintiff’s lawyer will say. Give me those bad facts!
OK, I exaggerate a bit – of course a lawyer first wants to see if there is a written agreement that contains a non-compete provision. But believe me, any experienced lawyer is itching to find those bad facts. Lawyers know that judges are ambivalent about non-compete agreements, and putting someone out of work by issuing an preliminary injunction to enforce a non-compete provision is something few judges do with an easy conscience. It’s no secret that there are some judges who will bend over backwards to find a way not to enforce a non-compete.
So, lawyers trying to enforce these agreements know that the one thing likely to motivate a judge to enforce a non-compete agreement is bad facts. And, if there’s anything better than bad facts its bad facts and a cover-up. After all, often the cover-up is worse than the crime.
Life Image’s lawsuit against Michael Brown, a former executive of Life Image, shows how bad facts and a cover-up can play out in a lawsuit where the former employer is seeking a preliminary injunction to enforce a non-compete agreement. Mr. Brown violated almost every rule an employee with a non-compete agreement should follow when leaving an employer.
First, Mr. Brown (V.P. of Business Development at Life Image, a cloud-based medical imaging service) met with his prospective employer and made a suggestion to enhance its forthcoming product, while still employed by Life Image. (Lesson to employees: do not meet with your prospective employer before leaving your current employer, other than to negotiate employment terms).
Second, Brown left Life Image with a demo copy of Life Image’s software program on his computer. And, it appears that he copied the program to his personal computer just before leaving Life Image. (Lesson: take nothing from your former employer except your personal belongings. Nothing).
Third, Brown had communicated with his new employer using Life Image’s email system, and he deleted copies these emails from of his “sent” email folder before leaving Life Image. (Lesson: don’t use your current employer’s email system to communicate with your prospective employer. if you do, don’t try to cover it up. Brown worked for a software company – he should have known that he couldn’t get away this this. Computers never forget.).
Fourth, according to the court Brown transferred a “large volume of information” from his Life Image computer to an external hard drive after giving notice. Brown could not justify doing this as part of his job at Life Image. (Lesson: see the second lesson, above).
Fifth, after suit was filed, and after the court had ordered Brown to return Life Image data to Life Data, Brown deleted some Life Image data from his computer. (Lesson: don’t violate court orders. And again, computers never forget.).
Admittedly, Brown would have had a tough case to start with – he was a high level employee at Life Image. The terms of his non-compete were reasonable, and he was made aware of the agreement as a pre-condition of his employment (as opposed to being asked to sign it after he had already started at the job). There was no question he had gone to a competitor (in fact, he had admitted this in an email while still employed by Life Image). According to the judge he had other job prospects, so presumably enforcement of the non-compete wouldn’t leave him unemployed.
However, Brown also had one important, sympathetic fact in his favor: Brown, a citizen of Australia, was in the U.S. on a work visa. The judge was told that an injunction causing him to become unemployed could result in the loss of his ability to remain in the United States. However, the judge rejected this factor, noting, “it is most unfortunate that Mr. Brown put his visa status in jeopardy when he took the risk of moving to [a competitor of Life Image] with apparent knowledge of possible outcomes.”
Brown also offered the judge a compromise that would have allowed him to continue to work for the new employer, but in areas that do not compete with Life Image. This can often work, giving the judge a way to reach a compromise decision. However, the judge rejected this, commenting on Brown’s “lack of judgment” in deleting files after receiving the court’s preservation order, as well as the other conduct discussed above. Based on these bad facts the judge expressed “doubt that [Brown] is possessed of the ability to wall off in his mind secret strategic marketing information about Life Image” while working for the new employer.
This case is a case study on what not to do when leaving an employer that might sue to enforce a non-compete agreement. The tragedy (if that’s not too strong a word) is that Mr. Brown might have been able to avoid an outcome that put him out of work had he only acted legally before and after leaving Life Image. The bad facts, not his contract, are what got him in the end.