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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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February 26, 2007 8:52 AM ET
More and more employers—witness clothing retailer TJX Cos.—are threatening to sue to enforce non-compete clauses of executives’ employment agreements when they jump ship, and it’s no longer just to protect company secrets or customer lists. Rather, companies are more frequently using non-compete litigation to try to block top employees from working for a competitor, said Boston attorney Jay Shepherd. “I think part of it is that it’s harder to get good top executives, so there’s a competition for that talent. “Our non-compete litigation is growing like crazy,” he said of his employment law firm. The portion of non-compete cases it handles has grown to 65% of the practice, about double that of 2002. Some of the new cases stem from the recent flurry of mergers and acquisitions. In these situations, typically the merged company doesn’t want departing executives, who have left of their own volition, trying to duplicate their success there with the competitor down the road, Mr. Shepherd explained. “We’re definitely seeing more of this,” he added. “And people forget that companies can get emotional, too,” and will file lawsuits based on a sense of betrayal or disloyalty and, occasionally, out of spite. But suits can also spring from a perceived need to set an example. “Some companies will litigate on principle, and some companies will spend hundreds of thousands [of dollars] on a single case just to make a point,” Mr. Shepherd said. In a growing number of cases, companies are trying to prevent top talent from being poached and to let employees know that if they do leave, they’ll have a fight on their hands. One example is the current battle between Pier I Imports and TJX. The retailers are feuding over Alexander Smith, a former TJX group president, who agreed to join Pier I as its chief executive, beginning last week. TJX, based in Framingham, Mass., is the parent company of T.J. Maxx, Marshalls and HomeGoods. Pier 1 is based in Fort Worth, Texas. Both sell home furnishings, although that is not a big part of TJX’s business. Last week, in a preemptory strike, Pier 1 got a Tarrant County, Texas, judge to grant a temporary restraining order preventing TJX from filing suit against Mr. Smith to prevent him from working for Pier 1. “Since Pier 1 is not a competitor with any of the TJX companies, those threats are improper,” Pier 1 officials said in a news release. TJX had threatened to file suit against Mr. Smith, an employee since 1995, citing his non-compete clause. Mr. Smith was scheduled to start at Pier 1 on Feb. 19. On Feb. 21, Cary Turner, a Pier 1 spokesman, would not verify that Mr. Smith did, in fact, begin working at the company.A hearing on the temporary restraining order is scheduled for Feb. 26. Both companies have declined to comment on the case beyond their respective news releases. “What’s unusual about TJX is that’s it’s someone being hired as CEO,” said Paul Holtzman of the law firm Krokidas & Bluestein. Usually, employers have gone after more junior employees in sales or product development jobs in order to protect customer relationships or trade secrets. One attorney, who didn’t want to be named, said one reason that CEOs—who typically know more about the company than any other employee—aren’t targeted more frequently may be that the top executives left behind may think twice about taking such tough tactics against their ex-boss, because it might come back to haunt them if they, too, decide to jump ship. One of the wrinkles to the enforcement of non-compete contracts is that they come under state law. As such, there is no uniform standard, so companies that do business in multiple states have been known to shop around for a state that is most likely to give them the most favorable non-compete ruling, said Lee Watson, a Minneapolis attorney with an employment law practice. Non-compete contracts are virtually unenforceable in California, for example, but in states like Florida and Minnesota, they’re a virtual “slam dunk” for employers, he said. Twenty-five years ago, the Minnesota courts rarely came down on the side of employers in non-compete cases, explained Mr. Watson, but now “there are very, very few cases where they don’t enforce them.” Since TJX is based in Massachusetts, it most likely would file its action against Mr. Smith in that state. In addition, the state is known for its relatively favorable legal precedents in that area. “We are seeing more litigation around non-competes within the last few years reflecting, I think, increased competition in certain industries and a recognition that Massachusetts courts will enforce them,” Mr. Holtzman said, adding that he wasn’t familiar with the TJX case. If non-compete contracts are challenged, which is not very often, they’re usually affirmed by the higher court, according to Mr. Watson. That reinforces the message that non-competes are the real deal. “A lot of people sign these thinking they aren’t enforceable, and that’s just wrong, because we see them get enforced all the time,” in many states, said Mr. Shepherd. FW
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