Phone Call to Employer to Enforce Noncompete Agreement Leads to Lawsuit

An employer accused of trying to have its former employee fired from her new job faces a lawsuit for defamation and tortious interference.

In Eaton v. Veterans Inc., Laurel Eaton filed suit in the United States District Court for the District of Massachusetts against her former employer, Veterans Inc. In her lawsuit, Ms. Eaton claimed that Veterans called her new employer and asserted that Ms. Eaton’s noncompete agreement with Veterans prevented her employment with the new company.  Ms. Eaton alleged that, during that phone call, Veterans threatened litigation to enforce the noncompete agreement (which Veterans never pursued), and demanded that the new employer fire Ms. Eaton – which it did. Based on these facts, Ms. Eaton claimed that Veterans defamed her and tortiously interfered with her new employment.

In response to Ms. Eaton’s complaint, Veterans moved to dismiss the tortious interference and defamation claims, arguing that its communications to Ms. Eaton’s new employer could not form the basis for liability because they were protected by the litigation privilege, which “extends to communications made preliminary to proposed judicial proceedings if judicial proceedings are contemplated in good faith and under serious consideration.”

On January 16, 2020, the court (Hillman, J.) denied Veterans’ motion to dismiss Ms. Eaton’s complaint. The court accepted as true (as it must at the motion to dismiss stage) Ms. Eaton’s allegations in her Amended Complaint that

(1) Defendant [Veterans] knew or should have known that it lacked any legitimate business reason to enforce the Non-Compete Agreement; (2) Defendant knew or should have known that the Non-Compete Agreement was unenforceable; (3) Defendant knew or should have known that its statements to [the new employer] regarding the enforceability of the Non-Compete Agreement were false; and (4) Defendant made these statements with the malicious intent of getting [Ms. Eaton] fired.

The court concluded that these allegations “create the reasonable inference that Defendant threatened legal action in bad faith and did not seriously consider initiating any judicial proceeding against Plaintiff or” the new employer. Accordingly, the court declined to determine at this early stage whether the litigation privilege applies to Veterans’ statements and denied the motion to dismiss.

The court’s decision highlights a risk of trying to enforce a noncompete agreement. The decision also serves as a reminder that efforts to enforce a noncompete must be tied to legitimate business interests, and that the litigation privilege is not necessarily an impenetrable shield. In light of this decision, practitioners and parties alike should keep in mind the value in analyzing the risks and rewards associated with whether to enforce a noncompete agreement, and how to go about pursuing enforcement.

eck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

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