1st Circ. Competitors ban in opposition to dismissed and reinstated staff not enforceable
Given the COVID-19 pandemic, many employers have been forced to layoffs as companies have been shut down according to local accommodation regulations, and have subsequently recruited workers as the restrictions on lifting have been lifted. A concern that employers should take into account is how the layoffs and later hiring of workers affect the enforceability of previously agreed restrictive pact agreements.
On June 2, 2020, the United States Court of Appeal for the First Circuit (the "First Circuit") gave the unsuspecting employer some clues and a warning story. In the Russomano v Novo Nordisk case, the First Circuit upheld a district court ruling that prevented the pharmaceutical company Novo Nordisk Inc. from enforcing a confidentiality and non-competition agreement it had with the recently dismissed and reinstated employee Thomas Russomano leaving the Company for a competing company. Novo Nordisk tried to enforce the agreement signed with Russomano prior to his brief interruption of the company to prohibit him from working for a competitor and disclosing certain confidential information.
Russomano first came to Novo Nordisk in January 2016 and signed a confidentiality and non-competition agreement as a condition of his employment. Russomano was released in November of this year, but was reinstated in December 2016 and signed a new ban on confidentiality and competition. Then, in June 2018, a similar series of events happened. Russomano was informed that his employment "will end with effect from August 3, 2018", but three days later he was transferred to a new position with the start date August 6, 2018, but did not have to sign a new confidentiality and non-competition agreement.
Russomano resigned from Novo Nordisk in January 2020. When Russomano was preparing to take up his new position, he filed a lawsuit against Novo Nordisk after refusing not to enforce the non-competition clause. Novo Nordisk brought the case to the federal court, filing a breach of contract, unfair competition, and misappropriation of counterclaims against commercial secrets, as well as an injunction and injunction. Novo Nordisk argued that the non-disclosure agreement and non-competition agreement that Russomano signed when he was reinstated in 2016 remained in force since he continued to work for the company until he resigned in January 2020. The district court rejected the application and found that Novo Nordisk was unlikely to be successful in the matter.
In the appeal process, the First Circuit upheld the District Court's ruling and found that the District Court was not wrong to conclude that Novo Nordisk's letter of termination from June 2018 was clear and that Russomano's appointment ended on August 3, 2018. Novo Nordisk, however, argued that this was not the case with Russomano being fired, but instead moving him to another position in the company. The court ruled that the language was clear and unambiguous in the June 2018 letter of dismissal and in the subsequent letter of reinstatement.
While the factual situation determines the enforceability of restrictive agreements after the termination of the employment relationship, Russomano's teaching against Novo Nordisk is revealing for all employers. Employers should not assume that a reinstated or dismissed worker is bound by the post-employment restrictive agreements signed prior to their dismissal or termination. If the COVID-19 restrictions are lifted and companies continue to reopen, employers are advised to evaluate the restrictive agreements of each employee who is reinstated or recalled after the termination of the employment relationship and, if necessary, a new agreement on restrictive contracts after the termination of the service after such service interruptions Sign employment relationship. Employers who have questions regarding the application of restrictive post-employment agreements should contact an experienced employment counselor.
As you know, things change quickly and there is a lack of clear authority or clear rules for implementation. This article is not intended as a clear, unified guide, but represents our interpretation of the current and general state of affairs. This article does not address the potential impact of the numerous other local, state, and state orders issued in response to the COVID 19 pandemic, including, without limitation, the potential liability in the event of an employee becoming ill, Pay for family vacation or illness requirements and other issues.
Sheppard Mullin endeavors to provide employers with updated information on COVID-19 and its effects on the workplace. Learn about the legal implications of Sheppard Mullin's Coronavirus Insights portal, which now summarizes the company's various COVID-19 blog posts.
* Jamie Moelis is a legal trainee in the work and employment group.