Bar News - December 16, 2011
Business Law & Business Litigation: Noncompetition Covenants in the Brave New World of Social Media
By: Scott W. Ellison
The NH Supreme Court has ruled repeatedly that the law does not look with favor upon contracts that restrain competition. Merrimack Valley Wood Products v. Near, 152 NH 192, 197 (2005). Such agreements will be upheld, however, to the extent that they prevent an ex-employee from appropriating an asset that is the employer’s, such as goodwill. Concord Orthopopaedics Professional Association v. Forbes, 142 NH 440, 443 (1997). The Court will allow the covenant for the time necessary "to obliterate in the minds of the public" the association between the employer and the ex-employee, and for a replacement employee to demonstrate his or her effectiveness and for the public to disassociate the ex-employee from the employer. Id. at 444. Thus, the employer is given a chance to build a new relationship with a new employee before the ex-employee can resume selling to a customer.
|Scott W. Ellison
In this new world of social media and non-stop communication however, an issue is emerging as to whether the ex-employee has truly removed himself or herself from the relationship if he or she continues to communicate with customers concerning matters which may or may not be commercial in nature. For example, if while employed the ex-employee established LinkedIn or Twitter or Facebook relationships with customers, what is the effect if the ex-employee continues to communicate via such channels after leaving employment. What should be the fate of those relationships after the employment relationship is terminated? The NH Supreme Court has used the terms "employee’s special influence" and "employee’s sphere of customer influence" in describing the potential power of an ex-employee over customers. Merrimack Valley Wood Products v. Near, 152 NH at 198 and 200. Is a customer immune from that sphere of influence if he or she continues to receive LinkedIn updates from the ex-employee?
This is an undeveloped area of the law, and certainly is also heavily dependent upon the actual text of the contract signed by the employees. That just raises the question however as to what, in this age of social networking, should a noncompetition agreement say and what is enforceable?
In a case out of the federal district court for the District of Minnesota last year, TEKSystems v. Hammernick (10-cv-00819), employees of TEKSystems agreed that after employment they would not "approach, contact, solicit or induce" any employee or contract employee of TEKSystems to provide services to any entity whose business is competitive with TEKSystems or "approach, contact, solicit or induce" any customer of TEKSystems in an attempt to enter into a business relationship if the business is competitive with TEKSystems’ business, among other restrictions. TEKSystems filed a lawsuit against Hammernick alleging that she communicated with contract employees and employees via LinkedIn and that such communications were a violation of her contractual restrictions. This lawsuit broaches new territory in raising the issue as to whether communication via a social network is a form of prohibited communication or solicitation. Unfortunately the lawsuit was settled prior to the Minnesota court addressing the issue, but not before introducing the potential cause of action to the legal world.
Another case in the fact pattern of which a similar issue arises came out of Ohio earlier this year, Graziano v. NESCO Service Company. 2011 U.S. Dist. LEXIS 33497. Graziano signed an employment agreement that said for one year after termination of employment, he will not in any manner induce or attempt to induce any employee or other person associated with NESCO to terminate his or her association with NESCO and not in any manner, directly or indirectly, interfere with the business relationship between NESCO and such persons, among other restrictions. Graziano’s employment was terminated, and he signed an agreement reaffirming the nonsolicitation provisions and pursuant to which he was to receive certain severance benefits. After termination, Graziano established a LinkedIn account and connected with some of his former NESCO colleagues. NESCO responded by sending a letter advising him to cease such usage of the LinkedIn website as such conduct violated the terms of the severance agreement. Graziano did not cease such conduct, NESCO stopped paying the benefits it had previously agreed to pay, and Graziano sued. Again, unfortunately, the opinion in this case does not resolve the issue as to whether the LinkedIn contact was a prohibited solicitation, but in it the court does rule against Graziano for one of his claims.
These cases demonstrate that conflicts are arising as to how to handle social media in the context of departing employees, treating them under covenant terms that are somewhat customary or traditional. However, does that traditional language adequately deliver the outcome employers may want with regard to such social media relationships? This is an area of the law which is still in flux and being developed, and I do not think any attorney can answer that question with certainty. The first question companies must answer is whether they want to require departing employees to delete from their LinkedIn contacts (and sever other social media connections with) anyone who is an employee of that company or anyone who works for a customer of the company, and to be prevented from establishing such links during the restricted period; if the company wants to require that action by the departing employee, then there should be an affirmative covenant in the noncompetition agreement explicitly requiring such action. The obligation should be explicitly stated, in an attempt to avoid the ambiguity currently existing as to the requirements of the more traditional language. Such language might read similar to "Upon termination of employment, Employee agrees to sever connections on LinkedIn, sever friend status on Facebook and unfollow anyone on Twitter who is a Company Employee or Company Customer, and further agrees not to establish or accept such relationships during the Restricted Period."
Even with such affirmative covenant, the company needs to remember that the obligation may or may not turn out to be enforceable depending upon how this body of law develops. Such uncertainty increases the need for the noncompetition agreement to: (1) have a section stating that the unenforceability of one section does not render the entire agreement unenforceable, and (2) make a request of the court that if the terms of one section are found to exceed the bounds of what is enforceable, then the court is requested to reform such section to the maximum limits of what is enforceable.
Scott W. Ellison is a partner at Cook Little Rosenblatt & Manson in Manchester, where his practice focuses on representing small- and medium-sized closely-held businesses with respect to their business law and commercial law needs. He can be reached at (603) 621-7122 or email@example.com and followed at @NHBusinessAtty.