Suits In The WorkPlace

Dressed for Success

I frequently see what I refer to as "quasi-commercial" cases involving non-compete agreements and the like from both plaintiffs and defendants.  A recent Virginia Supreme Court decision highlights the importance of being able to actually show damage to business, no matter egregious the violation of the non-compete agreement. 

The case involved two high-end clothiers -- James, Ltd. and Saks Fifth Avenue, Inc. operating in the Mecca of Washington, DC shopping, Tysons Corner.  At one point, Tysons Corner was exactly that, a corner of an intersection between two unpaved Virginia state roads.  In fact, sitting in my old office in Tysons Corner is a picture of a 1930s version of a convenience store at Tysons Corner.  It is the only building at the junction of the two roads.  The area is now a mega sprawl with two huge and very upscale shopping centers surrounded by equally upscale hotels, restaurants and boutique mini-shopping centers.  It's a great place to spend money quickly, which is why the two clothiers were located there. 

The salesman from James, who was at-will but subject to a non-compete that prohibited him from working for another men's clothing store within a mile for three years, went to work at Saks immediately after he left James.  Interestingly, as part of the recruitment process by Saks, Saks' management made statements to each other like, "Do whatever it takes to get [this] guy."  An aside:  Why do people keep writing things like this in e-mail?  In any event, there was little dispute at the trial court or Supreme Court that the salesman violated his non-compete agreement.  The trial court awarded $1.645 million in damages, plus costs, attorneys' fees and expenses to James. 

But the Virginia Supreme Court reversed, no doubt influenced strongly by the argument of one of my partners, Bill Broaddus. 

James established its damages solely through the testimony of an expert, who compared the sales while the salesman was at the store with the sales following his departure from the store.  The expert did not analyze whether the salesman’s former customers at James (he had 50 or so core customers and generated more than $1 million in sales each year) actually shopped at Saks following the salesman's departure. 

The Supreme Court found this to be a fatal error.  The court stated that the proper focus of a damages inquiry is not on lost sales that occurred as a result of the salesman’s departure -- he was, after all, an at-will employee who could have left at any time.  Instead, the focus must be on sales that moved with him as a result of his wrongful conduct.  In other words, James’ expert’s projection of damages would have been the same regardless of whether the salesman left to go to work for Saks or had been hit by a car.  The proper analysis would take into account revenue that moved to Saks from James.  Unfortunately for Saks, their expert could not establish that this had even occurred.

 Moral of the story -- covenant not to compete cases can be difficult to win under the best of circumstances.  Even where there's a clear violation of the covenant, if the business doesn't travel with the former employee, you won't win.