April 5, 2007 Court Permits Employer To Proceed With Novel Claim Against Competitor For Soliciting Its Employees

Summary

In a recent decision, CRST Van Expedited, Inc. v. Werner Enterprises, Inc. the Ninth Circuit Court of Appeals (applying California law) permitted a trucking company to proceed with its lawsuit against a competitor that allegedly solicited and hired away its recently trained drivers. Although ordinarily a company has the right to solicit a competitor’s employees for hire, in this case the trucking company had one-year employment contracts with its drivers and it put its competitor on notice of such contracts when it learned of the solicitation. The competitor nevertheless hired the drivers before their one-year contract was up. In that circumstance, the court ruled that the trucking company could proceed with its lawsuit and seek damages for intentional interference with contract and unfair competition.

Details

CRST Van Expedited, Inc. (“CRST”) is a trucking company that sponsors a driver training program to help its new hires become certified truck drivers. After a certain point in the training program, if the driver trainee wishes to continue employment with CRST s/he must sign a one-year employment contract. The employment contract provides that CRST will pay for all of the costs associated with the driver training and certification, however, if the employee is terminated for cause or voluntarily quits, the employee must reimburse the Company for a portion of the training costs.

CRST alleged in its lawsuit that after obtaining truck driver certification at CRST’s expense and working for CRST for only one month, two employees were solicited for employment by, and accepted employment with, Werner Enterprises, Inc. (”Werner”), a competing trucking company. CRST also claimed that Werner had a pattern of waiting for CRST to train drivers at CRST’s expense and then luring them away. CRST asserted that this conduct constituted intentional interference with contract, intentional interference with prospective economic advantage, and unfair competition in violation of California Business & Professions Code section 17200.

Although the trial court initially dismissed the entire lawsuit, the Ninth Circuit reinstated it on appeal. The court rejected Werner’s contention that soliciting and hiring CRST’s drivers was fair competition for employees. Because Werner knew that CRST had employment contracts with its drivers and yet still solicited the drivers for hire, it could be liable for intentional interference with those employment contracts and unfair competition. Notably, the court acknowledged that had CRST’s employees been “at-will,” Werner’s conduct would not have supported any of the claims alleged in the lawsuit. If the employees had merely been “at-will,” CRST would have been required to allege some independent wrongful or unlawful act by Werner other than the mere solicitation of its employees.

What This Means

This case demonstrates that one approach to fending off solicitation of valuable employees by competitors is to provide employees with employment contracts. Employers should understand, however, that this approach is not without risks. Employees who are provided employment contracts for a specified period of time may only be terminated for good cause. Thus employers may be sued for breach of contract by employees alleging there was insufficient reason for their termination. This is the primary reason most employers prefer to hire employees on an “at-will” basis.

In addition, although the court did not invalidate the term in CRST’s contract that shifted a portion of driver training costs to employees who breached their employment agreement, it is important to note that in most circumstances employers cannot lawfully require employees to bear or repay training costs or other costs associated with their employment. This case, however, falls within a narrow exception to that general rule when training costs are associated with obtaining a certificate or license that the employee is required to have by a State or local government.

This E-Update was authored by Denise Brucker and Lisa Hird Chung. For more information, please contact Ms. Brucker, Ms. Chung or any Paul, Plevin attorney at 619-237-5200.