Flair Communications Agency in San Francisco asked for an injunction against three former employees, claiming they violated a nonsolicitation and trade secrets agreement by stealing the agency’s clients and setting up a rival promotional agency. Flair also sought $1.3 million in damages. But the tables were turned when the court denied the injunction—and instead awarded the employees $1.3 million. We’ll explain what went wrong.
Employees Propose New Business Opportunity
Trouble started when David Flaherty, Kathleen Mitchell and Douglas Litwin—the three most senior members of Flair’s San Francisco office—proposed at a meeting at Flair’s Chicago headquarters that a spin-off corporation be created to replace the existing San Francisco office. Under the proposal, Flaherty, Mitchell and Litwin would each have had a partial ownership interest in the spin-off, which would concentrate on online promotions. Flair’s management flatly rejected the proposal. What happened next was hotly disputed. Flair claimed the three then resigned, immediately flew back to San Francisco and cleared out their offices, taking confidential files with them.
Workers Claim They Were Fired
The employees said they were involuntarily terminated. Immediately after they made their proposal, they claimed, the company president said he would accept their resignation and stormed out of the room. The three employees said they decided to go ahead with the new agency only after they were fired.
How To Survive an Employee Lawsuit: 10 Tips for Success
With lawsuits against employers becoming ever more common—and jury verdicts skyrocketing—your risk of getting sued has increased dramatically even if you’ve done all the right things. Learn how to protect yourself with our free White Paper, How To Survive an Employee Lawsuit: 10 Tips for Success.
Flaherty, Mitchell and Litwin subsequently started their own promotions agency and offered their services to Flair clients. In response to Flair’s lawsuit, the employees claimed they didn’t violate the nonsolicitation agreement because it only applied if they resigned or were terminated for cause. The employees also turned around and sued Flair for wrongful termination and defamation, based on alleged written statements by Flair’s president suggesting that the trio was greedy and unethical, according to John O’Connor of Tarkington, O’Connor & O’Neill in San Francisco, attorneys for the employees.
Big Verdict For Employees
The judge denied Flair the injunction. And the jury sided with the employees on their wrongful termination and defamation claims and awarded them $1.3 million, including $435,000 in punitive damages.1 Flair has filed an appeal.
Review Your Agreements
You can steer clear of the trouble Flair ran into by taking a few simple precautions:
- Don’t limit nonsolicitation agreements. Flair’s attorney, George Grumley of Piper, Marbury, Rudnick & Wolfe in Chicago, told CEA that the nonsolicitation agreement was not a standard contract but was drafted specifically to cover these employees. But the agreement probably would have been upheld if it had applied to any termination, whether voluntary or involuntary.
- Carefully document high-risk terminations. Any time employees leave under circumstances that are not cordial, you risk getting sued. Carefully document who said what during termination conferences and other key meetings.
- Use caution in statements about former workers. Warn supervisors and managers to avoid making statements about former employees that could be considered defamatory, particularly when there’s a litigation risk.
(1) Flair Communications Agency Inc. v. Flaherty, U.S.D.C. Northern Calif. No. C001061SC, 2001