Read This Case Before You Steal Your Boss’s Clients: Cautionary Tales from Definitive Sols. Co. v. Sliper
Ohio’s First District Court of Appeals, which covers Cincinnati/Hamilton County, recently decided the case of Definitive Sols. Co. v. Sliper, 1st Dist. Hamilton No. C-150281, 2016-Ohio-533, __ N.E.3d __. This was an interesting case involving an alleged breach of a “non-solicitation agreement” and alleged “tortious interference” by former employees of a company. The opinion, by Judge Pat DeWine, is extremely well-written and demonstrates superior modern legal writing techniques.
There are several lessons to be learned from this case. First, the story of what happened:
A company by the name of Definitive Solutions Company, Inc. (DSC) had a contract with P&G to provide design and technology services. P&G was a major client of DSC. Four DSC employees were assigned to the P&G account. These employees worked closely with P&G employees, were often contacted directly by P&G for work on projects, and sometimes worked on-site at P&G. It appears they built up a rapport with their contacts at P&G. In 2011, these employees began leaving DSC. One of them formed a new company called Creative Elements Group, LLC (CEG), where all four ended up working.
Even while some of the four employees still worked for DSC, they started scheming to take the P&G contract with them to their new company. Allegedly, they told their P&G contacts that DSC was in a financial crisis and that they were forming their own business (CEG) so that P&G could be assured that the same people who had been working on its projects would continue to do so. Some of them even made proposals to P&G on behalf of their new employer before officially quitting DSC. Reading between the lines, you can bet that there were strong personal connections between the P&G employees and CEG employees. Someone was taking someone out for some happy hours and expensive dinners, someone was friends with someone, someone was dating someone, someone went to school with someone, etc. P&G then sent its work to CEG. So the scheme was successful. The former DSC employees had their own company and they landed a whale of a client right out of the gate. The American dream at its finest, right? Well, it wasn’t so dreamy to DSC, who soon figured out what was going on.
DSC immediately fired the one employee of the group who was still on DSC’s payroll. This must have been a noteworthy firing – confrontation, hurriedly following the guy around as he picked up his belongings, having security guards escort him out, etc. One can only imagine. DSC then tried to fight back in Court. It filed a lawsuit, suing CEG, each former employee, and P&G, seeking to:
- Prevent CEG for doing work for P&G
- Recover money damages.
This, no doubt, presented a challenge for the nascent CEG. It was facing a lawsuit that would be expensive to defend, and its best client would probably not be thrilled about having to defend a lawsuit itself (and would find out that CEG’s statements about DSC being in a financial crisis, etc., were disingenuous). A headache, no doubt.
Long story short: after a bench trial (a trial to a Judge, not a Jury) the Court found CEG and the individual former DSC employees liable to DSC in the amount of nearly $1,000,000 (including lost profits, “recoupment of salary from faithless servants,” punitive damages and over $157,000 in attorney fees). Notably, DSC’s total legal fees and costs were over $300,000, and the Judge ordered roughly half to be paid CEG and the former employees. But remember, P&G was a Defendant, too. DSC was going after P&G as well. However, the Trial Court granted P&G’s Motion for Summary Judgment, dismissing all of DSC’s claims against P&G without a trial. Here is why:
DSC’s claims against P&G were for
- Violation of the non-solicitation provision in the contract between P&G and DSC
- Tortious interference (i.e., wrongfully interfering with DSC’s relationship with its employees).
However, these claims suffered from a fatal flaw: P&G had no obligation not to hire a company made up of former DSC employees to replace DSC. This is because the non-solicitation provision only prevented P&G from “directly solicit[ing] for employment a current or former employee of [DSC].” The issue, therefore, was whether contracting with CEG, a company made up entirely of former employees of DSC, constituted a direct solicitation for employment. The Court noted that this is “a fairly straightforward matter of contract interpretation,” ultimately ruling that there was no direct solicitation of employment after going through the following analysis:
{¶ 11} It is undisputed that P & G never tried to directly hire any of the Employee Defendants. Rather, under DSC’s construction, P & G solicited the Employee Defendants “for employment” when it solicited a proposal from the new company that they had formed. Under its reading, employment includes any work performed, whether an individual is on P & G’s payroll or the payroll of another company that contracts with P & G. P & G says no: “solicit for employment” means solicit for employment as a direct employee of P & G, and the solicitation of a different company to do work doesn’t constitute the solicitation of an employee for employment.
{¶ 12} We think P & G has the better of the argument. In our view, an ordinary reader of the English language would hardly think that recruiting a different company to perform work under a contract constitutes the “direct[ ] solicit [ation] for employment” of an “employee or former employee.”
{¶ 13} To succeed in its argument, DSC has to show that “employment,” as the term is used in the agreement, has a broad meaning that includes contract work performed as an employee of another company. But where an individual works for a company that is hired by a third party to provide services, we don’t commonly think of the individual as in the employment of the third party. Suppose a homeowner has a clogged sink and calls Acme Plumbing for help. We all understand that the plumber who shows up to snake the drain is in the employment of Acme, not the homeowner. The same goes for the Employee Defendants in this case. This common understanding is demonstrated by the definition of an employee in the community created and edited “encyclopedia” Wikipedia, which provides that an employee is “a person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.” (Emphasis added.) Wikipedia, Employee, https://en.wikipedia.org/wiki/Employment# Employee—or—employers (accessed February 1, 2016).
{¶ 14} DSC suggests that simply asking the Employee Defendants to perform work for P & G constitutes a solicitation for employment. But that can’t be right. If that were the case, P & G violated the Services Agreement every time it asked one of the Employee Defendants to work on a project, even when DSC still employed the Employee Defendants, and while P & G paid DSC for the Employee Defendants’ work. We will not interpret a contractual provision to reach an absurd result. See Kahler v. Cincinnati Inc ., 1st Dist. Hamilton No. C–140407, 2015–Ohio–979, ¶ 16, citing Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146 (1978), paragraph two of the syllabus.
So DSC was out of luck, as to P&G, though it appears it succeeded at leaving CEG and the former employees who went to work there in complete ruin. You have to appreciate the Court citing Wikipedia for the definition of employment. Anyone negotiating a non-solicitation provision in a contract will want to keep this case in mind. Also, more generally, it is crucial to remember that anytime you are entering into any contract – of any kind – there is flexibility to negotiate almost any kind of provision, and whether or not you can take legal action against the other side for doing something unfair will depend largely on the wording of your contract. Most of the “form,” or “template,” contracts out there are not very good. Lawyers must always review the terms of a contract in great detail, looking years down the road at possible scenarios and disputes that could occur. Failing to do so can be costly.
