Recently, the New Hampshire Supreme Court emphatically reminded employers of the risks of engaging in unethical behavior when hiring employees to obtain a competitor’s secrets
In Halifax-American Energy Company, LLC v. Provider Power, LLC (Feb. 9, 2018), the court upheld a jury verdict of more than $550,000—plus hundreds of thousands of dollars in legal fees—against three companies and their owners after they hired an employee who was simultaneously employed by a competitor.
Background
Freedom Companies and Provider Power Companies supplied natural gas and electricity to customers in New Hampshire and other New England states. After Provider hired an employee who was still working for Freedom, Freedom filed a lawsuit claiming that the employee had taken and disclosed its confidential and proprietary business information.
In the New Hampshire Superior Court, a jury agreed and found that Provider tortiously (wrongfully) interfered with contracts and economic relationships between Freedom and its customers, tortiously interfered with Freedom’s contract with its employee, and misappropriated trade secrets. The jury awarded compensatory damages for the tortious interference claims but awarded no damages for misappropriation.
The jury also awarded nearly $100,000 in attorneys’ fees to Freedom arising from a separate lawsuit it filed against the employee for his wrongful conduct. The total award was $556,208. Additionally, the trial court awarded Freedom attorneys’ fees (reportedly more than $300,000) under the New Hampshire Uniform Trade Secrets Act (UTSA).
Supreme Court’s Decision
On appeal, the New Hampshire Supreme Court upheld the verdict. Although there was evidence that factors apart from Provider’s conduct could have affected Freedom’s relationship with its customers, the court was not willing to overturn the jury’s finding. The court held that the contracts between Freedom and its customers were valid and that Provider interfered with those contracts by hiring the employee and encouraging him to take Freedom’s customer information and sales leads to use for Provider’s benefit.
Next, the court upheld the jury’s verdict that Provider tortiously interfered with the employment contract between the employee and Freedom. The agreement required, among other things, the employee to preserve the confidentiality of Freedom’s proprietary information.
Provider argued that the trial court allowed the jury to “conclusively presume” that the employee’s noncompete agreement was supported by consideration (a benefit the employee received for signing the agreement that he otherwise was not entitled to) and was valid. Instead, Provider argued that the noncompete provision lacked consideration, was invalid, and could not be the basis for an interference claim.
The court agreed with Freedom that the jury implicitly found that the employee’s noncompete agreement was supported by consideration and was valid. The lower court found there was consideration because the employee’s at-will employment continued after he signed the agreement, he was allowed to use company e-mail, and he was able to receive commissions the company could have disputed. Because Provider did not explain why those benefits were not sufficient consideration, the court upheld the jury’s finding that Provider’s actions constituted unlawful interference with a valid employment agreement.
Also, the court rejected each of Provider’s challenges regarding the type and amount of damages the jury awarded. Provider argued that the jury awarded double recovery by awarding damages for tortious interference with Freedom’s contracts with its customers as well as for interference with Freedom’s economic relationships with its customers. Provider argued that those claims overlapped. Because the trial court told the jury that it could not award double damages, the court assumed the jury followed the instructions and did not reduce the damage award.
The court agreed that the damage award was not “conclusively against the weight of the evidence nor wholly unreasonable.” A witness who testified on damages used reasonable assumptions based on historical data to estimate damages based on each customer’s average electricity usage, the commission or marginal profit per kilowatt hour, and the average retention length for customers. The witness then calculated what each customer would have spent on electricity—and therefore what Freedom would have earned if there had been no interference with its contracts or economic relationships.
The court also agreed that Freedom could recover attorneys’ fees it incurred in a separate lawsuit it had filed against the employee for his wrongful conduct. The court ruled it was reasonable for the jury to find that Freedom was forced to begin the lawsuit against the employee as a natural consequence of Provider’s tortious conduct. Thus, Freedom could recover $93,000 it spent to pursue the lawsuit. Even though the employee was the “primary perpetrator,” the jury could assess the fees against Provider as a coconspirator.
Finally, the court found it was appropriate for the trial court to award attorneys’ fees to Freedom under the UTSA. Under the statute, a court may award reasonable attorneys’ fees to a prevailing party for “willful and malicious misappropriation.” Even though the jury did not award any damages for Freedom’s misappropriation claim, the court found that the extent of Provider’s malice and willfulness outweighed that fact. In particular, the court stated:
The jury could have reasonably found that [Provider] exploited [the employee’s] position to siphon confidential customer information and sales leads in order to secure a competitive advantage in the same market in which [Freedom] operated. This is not a case where the misappropriated information was put to some use that could only indirectly harm [Freedom]; it was wielded in the exact manner [the] UTSA was enacted to discourage.
Bottom Line
Provider’s conduct has been characterized as corporate espionage designed to sabotage a competitor’s business. Such egregious conduct is hopefully rare. However, the lessons from the case apply to any situation in which a new employee possesses confidential or proprietary information belonging to a competitor.
It is important to respect restrictive covenants and set up internal protections so that employees do not bring, share, or use (and are not tempted to bring, share, or use) confidential or proprietary information belonging to the competition. Be risk-averse when asking an employee to contact former customers, and avoid involving the employee in negotiations or strategy meetings about former clients until his restrictive covenant has expired. And understand that although a noncompete provision may not be enforceable, encouraging an employee to share competitive trade secrets could have dire consequences under the UTSA, an independent statute that could lead to significant attorneys’ fees.
Karen Whitley is a shareholder of Sheehan Phinney and a member of the labor and employment group. Whitley is also an editor of New Hampshire Employment Law Letter and may be reached at 617-897-5655 or kwhitley@sheehan.com.