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In October of 2011, seven mortgage bankers at Quicken's Phoenix area office resigned. They received a letter from the company reminding them of the obligations of their employment agreements including the non-compete, confidentiality, non-communication, and non-disparagement provisions. The employees went to work for a competitor and were sued by the company. One employee filed an unfair labor practice charge with the NLRB alleging the agreement violated the Act. In the summer of 2013, the NLRB agreed with an administrative law judge that the agreement's provisions with respect to non-disparagement and confidentiality were unlawful because they could be construed as restricting the employees' right to engage in protected, concerted activity. The Board required the company to rescind the portions of its confidentiality provision which included the definition of "personnel information" which included rosters, co-employee addresses, handbooks, and contact information. The entire non disparagement provision was found unlawful. The Arizona Court of Appeals, Division One, recently affirmed a lower court's grant of summary judgment to the employees and their employer which had intervened in the action in a not for publication, non precedential decision. The lower court had found the restrictive covenants to be overbroad and unreasonably restrictive and further found Quicken failed to meet its burden of establishing a legitimate business interest in the provisions as written. The court declined to amend the agreement to create an enforceable one because the provisions were intertwined with an integral part of the overbroad covenants. Quicken did not appeal the covenant not to compete issue. The agreement contained a choice of law provision selecting Michigan law. The court assumed without deciding that Michigan law applies and found the provision dealing with contact or hiring of current employees overbroad and time frame. The court stated that the provision's two year time frame was not an attempt to protect proprietary interests but was an attempt to preclude employees from using skills learned about the industry. The court noted that when an employee's knowledge of proprietary information is not at issue, the courts are more likely to enforce a restriction of twelve months or less. The court rejected Quicken's argument that the two year non-contact rule is reasonable to protect its investment in training people. It noted that only six weeks is spent in training, and that most employees become profitable within months of completing the training. The court stated that the prohibition against contact is not aimed solely at limiting employees from communication with former employees about new opportunities with the industry; it forbids current and former employees from speaking about any job opportunities, even those unrelated to mortgage banking industry. The provision restricts communication regarding issues that are not merely proprietary customer or company information. The court stated that Michigan law did not allow the courts to rewrite the express terms of the agreement, and that to make the two year provision reasonable, it would have to re write it.
In conclusion, the court stated that: the temporal duration exceeded that which is necessary to protect a legitimate business interest; it precluded employees from using their basic knowledge and skills in the mortgage related industry; and it attempted to prohibit discussions of employment that is not mortgage related. Even though the decision is not reported and not precedential, it provides Michigan employers with some guidelines in the drafting of provisions concerning non-compete agreements, especially as to scope. Employers would do well to review their agreements in light of the Board and court decisions.
For additional Labor and Employment law insights from John Holmquist, visit the Michigan Employment Law Connection.
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