Employment Litigation Roundup: November 2023 | Seward & Kissel LLP
Ex-employee’s golf outing with customer does not violate non-solicit
An auto parts manufacturer in Michigan sought a preliminary injunction against a former sales employee for violating his restrictive covenants, including a non-compete and a non-solicit. A core factual allegation was that the ex-employee attended a charity golf outing, on behalf of his new employer, hosted by a client that the plaintiff and the new employer shared. The court found that the covenants were likely enforceable, but denied injunctive relief. Part of the court’s reasoning was that the plaintiff did not show it would suffer irreparable harm without an injunction. But what we find most interesting is the court’s holding that attending the event was not, without more, sufficient to establish a violation of the non-solicit.
S&K take: Restrictive covenant plaintiffs often base claims on instances of contact between a former employer and a restricted relationship. This decision illustrates that contact alone, in the absence of restricted conduct (like solicitation) may not be sufficient to justify injunctive relief.
Georgia federal court enjoins ex-employee from using trade secrets to disparage company
Critical Edge, a critical infrastructure security provider, sued its former human resources officer in Georgia federal court under the federal Defend Trade Secrets Act (“DTSA”) and Georgia state law. It alleged that the former employee refused to return a company-issued laptop containing confidential information and trade secrets, shared confidential employee compensation details to damage the company’s reputation, and sent “harassing” messages to employees to discourage them from working at the company. The court issued a preliminary injunction against the employee, prohibiting her from using, accessing or disclosing any of the company’s confidential information; requiring her to return all company property; and requiring her to identify every individual or entity, governmental or private, to whom she disclosed confidential information.
S&K Take: It’s not uncommon for ex-employees to act vengefully, but the concerns likely were amplified here given the employee’s sensitive role as a human resource professional. The scope of the injunction is also worth noting, especially to the extent it requires the former employee to disclose everyone—including government entities—to whom she disclosed the company’s confidential information. The injunction did not (nor could it) go so far as to restrict comments that did not involve the disclosure of confidential information. Finally, this case is a reminder that the federal DTSA can be a useful tool for employers who prefer to be in federal court, which many perceive to have more experience with complex matters than their state-level counterparts.
Federal appellate court in California affirms $17M jury verdict against ex-employees in trade secret case, reversing district court’s holding that the trade secrets were not adequately identified
The U.S. Court of Appeals for the Ninth Circuit reinstated a $17 million jury verdict to a group of jointly-owned businesses that connect prospective customers with moving companies. The case began when the companies sued two ex-employees who started a competing company in California for misappropriation of trade secrets and breach of contract. The jury found for the companies, but the trial court threw out the verdict, holding that the companies failed to adequately identify a protectable trade secret. The appellate court disagreed, holding that certain Google advertising data held independent economic value from not being generally known—in particular “conversion rates” that summarize how many users clicked on the advertisements and ultimately purchased services, and “quality scores” reflecting Google’s assessment of the relevance of certain keywords to users.
S&K Take: Even in jurisdictions like California where non-competes are prohibited, trade secret law can be leveraged to safeguard employers’ business interests against ex-employees.
Massachusetts federal court permits class action suit alleging AI screening tool is an unlawful lie detector test
A candidate who was denied employment with CVS Health Corp. and CVS Pharmacy Inc. (“CVS”) brought a class action lawsuit in District of Massachusetts alleging that CVS’s use of an artificial intelligence (“AI”) screening tool, without notice, violates Massachusetts’s prohibition on administering lie detector tests as a condition of employment. The screening tool, HireVue Interview, uses AI-enhanced software to scan candidates’ facial actions and vocal responses to a set of questions and purports to determine individuals’ “employability” by evaluating certain core attributes, including cognitive ability, emotional intelligence, willingness to learn, and conscientiousness and responsibility. The court held that the law creates a private right of action and denied CVS’s motion to dismiss.
S&K Take: The increasing use of algorithmic decision-making tools for employment decisions is a complex, rapidly developing issue. However, much of the conversation has been centered around their potential discriminatory impact. This case shows another potential pitfall and is a reminder that employers should take caution in outsourcing employment decisions to AI.
