System One Brings "Tempnapping" Suit Against Acara Solutions

Is this a trend?

This sort of thing used to happen more frequently 25 years ago. A client decides to ditch its existing staffing agency and cuts a deal with a competing agency to take over the incumbent agency's workforce. Sometimes the issue was service, but more often it was price. Litigation ensued, because no agency likes recruiting an entire workforce for a competitor to cash in on. As a result, clients over the years learned that the ensuing legal mess was not worth the desired savings.

But old lessons can be forgotten. SLN has long been following an ongoing case in Chicago brought by Surge Staffing against competitor Resolve HR. This case is a good example of the legal pain that can be inflicted upon an alleged tempnapper, including an attorney's fee award to the Plaintiff for discovery violations by Resolve. You can read the stories here and here.

We have a new one, this time between System One and Acara Solutions. System One is the 28th largest US staffing firm according to Staffing Industry Analysts and Acara states that it is included in the top 90 US staffing firms. But Acara is just one of five subsidiaries of the Aleron Companies, a conglomerate of staffing and recruiting firms. These are two large players, making for a potentially epic legal battle.

The System One lawsuit

The case was filed on February 19, 2024, in the U.S. District Court for the District of Western Pennsylvania. Here, as in the Surge vs. Resolve matter, the client (Alstom Transportation, Inc.) was not sued, even though System One asserts that the proposed transfer was a breach of the client contract. As we pointed out in the first Surge/Resolve article, where the client likewise was left out, this is likely because it is not good long-term business to involve clients in unfair competition cases, even when the clients may have been complicit.

System's One's Complaint (copy attached below) is based on the following primary legal theories:

1. Acara's knowing acceptance and use of trade secrets from the client (candidate names, contact information and billing rates) is a violation of the federal Defend Trade Secrets Act, as well as the Pennsylvania Uniform Trade Secrets Act.
2. The transfer unlawfully interferes with the System One/Alstom non-solicitation/no-hire terms in their staffing contract. It is asserted that the hiring of the workers by Acara at the client's request is a violation of the client's obligations, and therefore Acara is tortuously (unlawfully) assisting in the breach.

Interestingly, System One put both Alstom and Acara on advance notice that it considered their actions to be unlawful and a lawsuit could be expected. From the Complaint:

On January 19, 2024, upon learning that Alstom may have provided Acara with System One’s confidential employee census information and with the Service Agreements containing System One’s confidential pricing and business information, System One, through its counsel, wrote to the Chief Executive Officer and President of Acara, to advise Acara that System One’s Service Agreements with Alstom do not give Alstom the right to hire System One employees indirectly through a staffing firm other than System One; that Acara’s hiring and employment of System One employees to provide services to Alstom would cause Alstom to be in breach of System One’s Service Agreements with Alstom and would constitute tortious interference with those agreements by Acara...

The Complaint goes on to recount a discussion between lawyers for each company:

On a follow-up call that System One’s counsel had with [an Acara Associate General Counsel] ... on January 23, 2024, [the Counsel] was dismissive of System One’s demands and concerns regarding Acara’s possession of System One’s confidential business information and Acara’s hiring of System One employees, and [he] refused to provide System One with any of the information demanded in System One’s January 19, 2024 letter to Acara. During that call, [the counsel] stated that he had reviewed a list of employees, work locations, and pay rates (emphasis added).

If accurate, that would probably make material witnesses out one or more members of Acara's Legal Department, which this writer can say from experience is an uncomfortable position to be in.

System One's request for relief is as follows:

a. Award preliminary and permanent injunctive relief enjoining Defendant, Acara Solutions, Inc., for a period of one year after the end of the employee’s employment with System One, from soliciting for hire or engagement, or hiring or engaging, any current or former System One employee who provided services to Alstom Transportation, Inc., within the last 12 months of the employee’s employment with System One;

b. Award preliminary and permanent injunctive relief ordering Defendant, Acara Solutions, Inc., to return to System One all originals and copies of all Trade Secret Information or other matter or materials containing confidential and/or proprietary business information of System One’s;

c. Award preliminary and permanent injunctive relief enjoining Defendant, Acara Solutions, Inc., from utilizing or disclosing, for any purpose, any
confidential information of System One’s, including but not limited to the Trade Secret Information;

d. Award preliminary and permanent injunctive relief enjoining Defendant, Acara Solutions, Inc., and all persons acting in concert with it, from using, disclosing, or otherwise misappropriating any and all trade secret, proprietary, and protected System One confidential information, including the Trade Secret Information;
e. Award System One compensatory, punitive, and exemplary damages;
f. Award System One its attorneys’ fees and costs of suit;

SLN will be following this one closely and will provide updates as events unfold.

Contact Bill Josey: wjosey@staffinglaw.com

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