Federal court invalidates non-solicitation and non-disclosure contract provisions in proxy war with Jobot
I have litigated or managed as in-house counsel over 100 noncompete/trade secret lawsuits involving staffing firms, and the area is of particular interest to me. Last year, I reported on a legal battle being waged by staffing giant Allegis and its subsidiaries against upstart competitor Jobot. The story involved Allegis' lawsuit against Christopher J. Bero, a 10-year veteran of Allegis subsidiaries Aerotek and Aston Carter who was recruited away by Jobot:
In a discovery dispute arising out of the case against Bero, Jobot's attorneys asserted that the case was part of a proxy war against Jobot:
The lawsuit against Bero is not a one-off. It is part of the Allegis Companies’ larger corporate strategy of indirectly attacking Jobot, and trying to deter additional employees from leaving, by punishing employees who left to work there. So far, the Allegis Companies have recently filed at least two more lawsuits against former employees who left to work for Jobot.
The strategy, if that is indeed what it is, is not going well for Allegis.
In a recent ruling on dueling motions for summary judgement in the Bero case, Judge Ellen L. Hollander of the United States District Court for the District of Maryland ruled that both the non-solicitation and confidential information restrictions in the Aston Carter employment agreement are unenforceable as written. This is a total victory for Beros. Allegis and Aston Carter have appealed, and it will take up to a year for the Fourth Circuit Court of Appeals to issue a ruling.
Judge Hollander's order is a strategic disaster for Allegis and Aston Carter. The invalidated contract provisions are similar to the terms utilized by other Allegis divisions. Unless overturned on appeal, the ruling can be cited as precedent in future restrictive covenant cases involving Allegis and subsidiaries. In fact, it's already happening - see the Allegis vs. Nosky case discussion below. Importantly, many of the restrictive covenant cases brought by Allegis entities take place in this particular federal court, because Maryland-based Allegis routinely includes a Maryland venue provision in its employment agreements.
Initially, one has to question why the case got this far at all. According to Bero's LinkedIn profile, he resigned from the offending Jobot position in June 2023 to undertake what surely is a recruiter's dream job, Director of Recruiting and Development for the Nashville Predators hockey team. A job change like this typically represents a "win" of sorts for the former employer, because it appears (whether or not accurately) that the former employee was driven out of the staffing business by the lawsuit. Leaving appearances aside, what is the point of risking an adverse ruling on key contract terms when there is no longer a real threat to your business? Why not either settle or voluntarily dismiss the case once Bero was no longer a threat? Was Allegis just trying to make an example out of him, as Jobot alleges? if so, it's certainly not the example they were looking for.
In any event, the case remained open for 2 months after Bero left Jobot. During this time, the Judge considered the competing motions and drafted the Order finding in Bero's favor, which was issued on September 1, 2023 (copy attached below).
The Bero facts
Bero resigned from his leadership and sales role at Aston Carter's Nashville-area office to work for Jobot in February 2022. According to its website, Jobot is:
disrupting the recruiting and staffing space by:
- Using the latest AI technology to match jobs to job seekers.
- Having a culture built on kindness and respect.
- Hiring experienced recruiters who believe in providing the best possible service to their clients and candidates.
Of course, the disruption caused by hiring experienced recruiters can lead to litigation over restrictive covenants. This type of litigation can certainly go well for the former employer, as illustrated by two massive damage awards that SLN previously reported on here ($5,061,444 damage award to employer) and here ($3,640,132 damage award to employer). But it can also go badly for the employer, as this case illustrates. This is why these cases are rarely tried - the stakes can be quite high.
Bero was sued by Allegis and Ashton Carter in March 2022. The lawsuit sought to enforce the employment agreement's non-disclosure and client non-solicitation provisions, which are not dissimilar to provisions commonly seen throughout the staffing industry:
NON-SOLICITATION COVENANT: EMPLOYEE agrees that upon the termination of EMPLOYEE’s employment, whether by COMPANY or EMPLOYEE and whether with or without cause, for the Restricted Period EMPLOYEE shall not directly or indirectly:
(a) Communicate with any individual or entity which is a Covered Customer for the purpose of:
(i) entering into any business relationship with such Covered Customer if the business relationship is competitive with any aspect of COMPANY’s Business (or any COMPANY affiliate which employed EMPLOYEE during the Look Back Period) for which EMPLOYEE performed services or about which EMPLOYEE obtained Confidential Information during the Look Back Period, or
(ii) reducing or eliminating the business such customer conducts with COMPANY (or any COMPANY affiliate which employed EMPLOYEE during the Look Back Period)
EMPLOYEE shall not use, disclose or divulge any Confidential Information of COMPANY (or any COMPANY affiliate which employed EMPLOYEE during the Look Back Period) to any other person or entity besides COMPANY.
Various definitions provide the meaning of "Covered Customer," "Company's Business," "Confidential Information" and "Look Back Period." If you want full details, click on the link below to read the Court's 88 page (!) Order.
The non-disclosure ruling
On pages 73 and 74 of the attached Order, Judge Hollander writes:
In my view, the Non-Disclosure Covenant is overbroad. And, I decline to apply the blue-pencil doctrine to the terms of the Non-Disclosure Covenant in order to salvage it. The covenant’s deficiency does not arise from specific offending terms that might easily be excised. Rather, the overbreadth of the Non-Disclosure Covenant arises from its failure to clearly define and distinguish the kinds of information encompassed by the terms “trade secret” and “Confidential Information” .... To remedy such an error, the Court would be forced to rewrite the Non-Disclosure Covenant. See Medispec, Ltd., 133 F. Supp. 3d at 775 n.3 (“Because no independent sentence or clause could be excised here to narrow sufficiently the scope, blue penciling is inappropriate”).
Because I decline to enforce the Non-Disclosure Covenant, I need not resolve the parties’ disagreement about whether Bero’s emails from his Aston account to his Gmail account constituted an impermissible disclosure.
The non-solicitation ruling
Judge Hollander wrote:
In sum, I conclude that the restriction is not “narrowly tailored to the work that [Bero] performed before termination.” ... And, for that reason it is unenforceable, as written.
In particular, the Non-Solicitation Covenant is unreasonable insofar as it extends to customers about whom Bero acquired Confidential Information, but with whom he had no personal contact, and insofar as it extends to Aston’s prospective customers with whom Bero may have been “involved” during the Look Back Period.
I note that Aston’s proposed construction of the Non-Solicitation Covenant to proscribe all business relationships “competitive with Aston Carter,” regardless of the business areas these relationships concern, would simply confirm the Non-Solicitation Covenant’s overbreadth. Accordingly, even if I were to adopt Aston’s construction of the Non-Solicitation Covenant, I would conclude that the Non-Solicitation Covenant is too broad.
I would take issue with parts of the Court's ruling, which seems somewhat strained in finding the agreement's terms unenforceable. In particular, it seems quite reasonable for an employer to prevent a former employee from using confidential information to solicit its customers, whether or not the employee had contact with those customers. Similar contract provisions are generally considered enforceable, even in places like California.
The Nosky case
As noted above, there is another Jobot-related case pending in the Maryland U.S. District Court, this one before Judge Paula Xinis who, like Judge Hollander, is an Obama appointee.
In June, 2022, Allegis group and its subsidiary Aerotek sued Kenneth D. Nosky, described in the Complaint as a " high-performing employee of Aerotek in an Account Manager position in Aerotek’s Edison, New Jersey office location until his resignation on September 3, 2021 to work for Jobot." The Complaint stated:
Allegis and Aerotek bring this action seeking legal relief based on Nosky ’s misappropriation of Aerotek’s confidential information and his failure to return such information – Aerotek’s property – upon his departure from Aerotek to work for a competitor called Jobot, LLC (“Jobot”).
Nosky's position, contained in a later filing, is as follows:
This case is about a vindictive former employer trying to punish a former employee and discourage other employees from leaving for opportunities with another company that will treat them better. Defendant Kenneth Nosky does not dispute that he emailed himself various documents on his last day of employment, including some Aerotek-related documents. However, the evidence is undisputed that he deleted all such files 10 days later, without ever having used or disclosed them and without Plaintiffs being damaged.
Plaintiffs readily admit they suffered no damages from any conduct by Nosky. But because Nosky went to Jobot, a newcomer in the staffing industry that has upset Aerotek by hiring Nosky and other employees, Aerotek decided to improperly make a federal case out of it. As their motion makes clear, Plaintiffs’ motivation for filing this action was to force Nosky to remain in a case where they admit he caused them no damages, run up attorneys’ fees, and then manufacture an attorneys’ fees award against Nosky based on being a “prevailing party” for obtaining, at best, nominal damages.... Plaintiffs’ motion for summary judgment should be denied. Instead, summary judgment should be granted in Nosky’s favor to put an end to this waste of judicial resources.
Interestingly, the original Complaint filed by Allegis and Aerotek against Nosky contained the following allegations:
Plaintiffs are informed and believe that Nosky stole Plaintiffs’ confidential information to use or disclose, or intending to use or disclose, it for his benefit and the benefit of Jobot. For its part, Jobot is a growing competitor that has hired in excess of 30 Aerotek’s (or its affiliates) employees, generally providing substantial compensation increases, and shows no signs of curtailing its continued cherry picking of employees from Allegis companies (emphasis added).
Sure sounds like a proxy war to me.
Both parties in this case have filed motions for summary Judgement that I expect to be ruled upon by the end of the year. So once again, the stage is set for a ruling that one side or the other is not going to like. However, the stakes would seem to be much higher for Allegis Group and Aerotek, because the loss of a case like this, especially following the Bero ruling, would double down on adverse precedent in Allegis's "home court."
Nosky's attorneys, who are likely funded by Jobot, were quick to take advantage of the Bero ruling, referring to it no less than 16 times in their summary judgment briefing, including the following excerpts:
Judge Hollander’s decision granting summary judgment to the former employee in Bero is instructive here because Bero involved similar facts and a similar agreement. Like here, Allegis and an affiliated company sued a former employee for breach of an employment agreement because the employee emailed himself alleged confidential information before he left. As in Bero, the Court should grant summary judgment in Nosky’s favor and against Plaintiffs on their breach of contract claim.
As to Count I for breach of the Employment Agreement, the Court should grant Nosky summary judgment because the confidentiality provision on which Plaintiffs base their claim is unenforceable under Maryland law. In response to Noksy’s arguments, Plaintiffs make the same arguments that Judge Hollander rejected in Bero.
Because the confidentiality provision in Nosky’s Employment Agreement is materially identical to the one considered in Bero, this Court should likewise reject Plaintiffs’ arguments and hold that the provision is unenforceable under Maryland law.
If the Allegis parties do not prevail against Nosky, there could be another appeal. However, the case is so similar to Bero that I would expect next year's Bero ruling by the Fourth Circuit Court of Appeals to be dispositive. Staffing Legal News will be there with a full report.
Contact Bill Josey: email@example.com