Litigation Risks From Job Applicants With Non-Compete Agreements

When a job applicant discloses a non-compete agreement with a former employer, the prospective employer may already be aware that, if the applicant is hired, the former employer might sue for “tortious interference.”  However, as two recent decisions by federal courts in Alabama make clear, a prospective employer can also face claims brought by job applicants — especially if a job offer is rescinded or if the proposed employment does not go as planned.

In Jones v. Océ Imagistics, Inc., No. 1:12-cv-163-CG-M, 2012 WL 6014612 (S.D. Ala. Dec. 3, 2012), an employer (Océ Imagistics) allegedly hired an employee (Mr. Jones) knowing that he had a non-compete agreement with a former employer.  Océ Imagistics later terminated Mr. Jones’s employment when the former employer threatened to sue.  Following his termination, Mr. Jones sued Océ Imagistics.

Similarly, in Cochran v. Five Points Temporaries, LLC, — F. Supp.2d —, 2012 WL 5492597 (N.D. Ala. Sept. 28, 2012), an employer (Five Points) hired an employee (Ms. Cochran) who had a non-compete agreement with a former employer.  However, when the former employer filed suit, Five Points did not initially terminate Ms. Cochran’s employment, but instead hired attorneys to defend her.  Notwithstanding, when Five Points stopped paying for the attorneys, Ms. Cochran turned around and sued Five Points.

The employees in Jones and Cochran attempted to bring “misrepresentation” claims based on almost identical statements by the employers.  When Mr. Jones first told his new employer about his non-compete, the new employer allegedly told him that the “Legal Department says that the non-compete agreement is not enforceable.”  Likewise, when Ms. Cochran told her new employer about her non-compete, the new employer allegedly told her that the attorneys said the non-compete agreement was “not worth the paper on which it was written.”  Both courts, however, rejected such “misrepresentation” claims.  Under Alabama law, stating that a non-compete agreement is “not enforceable” does not necessarily misrepresent anything — this is a statement of opinion, not fact.

Unlike the Jones case, though, the Cochran case did not dismiss the employee’s claims in their entirety.  Ms. Cochran also claimed breach of contract, pointing to a document in which her employer had allegedly agreed to pay for her attorneys.  The court found the allegations in Ms. Cochran’s complaint sufficient to state a claim for breach of this alleged contract.

However, Ms. Cochran’s attorneys not only defended her from her former employer’s claims for breach of the non-compete agreement; her attorneys also filed counterclaims on her behalf.  According to the filings in the state court action initiated by the former employer, the countersuit included allegations that the former employer’s president had “grabbed Cochran’s right buttock” at a company Christmas party.  Her new employer did not believe there was any obligation to fund such a countersuit.  Although the litigation between the former employer and Ms. Cochran has since been resolved, her claims against the new employer (Five Points) are still being litigated.  Meanwhile, the relationship was further soured when Five Points subsequently terminated Ms. Cochran’s employment.

As Jones and Cochran both illustrate, too much focus on a non-compete agreement can lead to litigation exposure in other areas.  In Jones, the employer terminated the new hire (so as to avoid non-compete litigation with the former employer) and was sued by the new hire.  In Cochran, the new employer initially stuck by the new hire through funding litigation over alleged misdeeds at the former employer’s Christmas party.  However, the employer in Cochran was sued by the new hire, too.  Employers considering job applicants who have non-compete agreements should keep in mind general employment-law principles and evaluate the risk of claims by job applicants and new hires, as well as the risk of claims by former employers.