Smooth Transitions Law Blog
Addressing the legal issues arising from the departure of employees & business breakups

Placement Professionals

Recruiters: Poach at your peril.
January 12, 2009

Most placement professionals try to stay away from taking employees from their company clients and in many instances it is prohibited by contract. More importantly, it can be bad business.

In a lawsuit filed in New York, JP Morgan Chase Bank v. IDW Group, Inc., JP Morgan brought suit against a firm that previously provided placement services and allegedly poached JP Morgan employees. It claims this was in violation of its contract with IDW and a breach of fiduciary duty. Here’s blogger Kenneth Vanko’s take on the case. It seems hard to believe that a business relationship evolved into a fiduciary duty relationship (very difficult to prove in Texas) but nevertheless, it is a claim.

Assuming there is no contractual provision in place, there is little a client can do to prevent a placement professional from soliciting its employees. Nevertheless, do you really want to have a reputation for poaching? Obviously, the facts and circumstances will vary and require individual analysis. Remember, there is little barrier to filing a lawsuit, basically a lawyer and a filing fee, and an irate client may seek legal redress like JP Morgan.

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Non-Solicitation Agreements  / Placement Professionals  / Trade Secrets

The Non-Compete Playbook: The Injunction Hearing
December 15, 2008

An injunction hearing in Texas state court is similar to a bench trial. Depending on the Court’s preferences, both parties may offer opening and closing remarks. The party with the burden of proof on the injunction, in this case Company A, will offer its evidence and then Jordan James has the opportunity to offer any evidence she would like the court to consider. This may consist of deposition testimony, live testimony in the courtroom, and the offering of documents into evidence.

After presentation of the evidence, the Judge determines whether Company A is entitled to a temporary injunction. In the Company A/Jordan James dispute three individuals testified: James, her supervisor at Company A, and a law firm client of Company A’s. The Court after considering the evidence, denied the injunction.

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Injunction  / Non-Compete Agreements  / Placement Professionals

The Non-Compete Playbook: Discovery
December 1, 2008

Picking up on the Company A/Jordan James dispute, Company A successfully obtained a temporary restraining order against James. The Court ordered James not to engage in any placement work and return all Company A documents in her possession. Furthermore, the Court ordered Company A to post a $5000 bond and set the preliminary injunction for hearing in ten days. Company A requested that the Court allow for limited discovery before the injunction hearing. The Court will allow Company A to take 1 deposition and permit the service of 10 requests for production. James is also permitted the same. So what are these type of discovery devices?

(1) The Deposition: Permits a party to ask an individual questions under oath. In cases where a party is a company, the opposing party can ask the company to designate a representative or representatives to testify on certain topics. A Court reporter transcribes the testimony under oath and in some instances, the deposition is videotaped. In Texas, a party is generally limited to 6 hours of deposition time for each deponent.

(2) Request for Production: Permits a party to request production of categories of documents. This also includes electronic discovery and could include the inspection of hard drives and other sources where electronic data may be maintained.

(3) Interrogatories: A party can force the other side to answer written questions under oath.

Parties may also conduct discovery on non-party witnesses. This may take the form of a deposition, document requests, and depositions on written questions.

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Non-Compete Agreements  / Placement Professionals

The Non-Compete Playbook: The TRO
November 17, 2008


Picking up on last week’s entry, Company A has decided it will file a lawsuit against Jordan James in Dallas district court and seek a temporary restraining order (“TRO”). A TRO typically precedes a temporary injunction, but the grounds for relief are largely the same. Most TROs or injunctions are prohibitory in nature, meaning they prohibit a party from certain conduct. In some cases a TRO or injunction can request mandatory or affirmative conduct, such as the return of a customer list or other company documents.

In order to obtain a TRO, Company A must show:
1. A request for permanent relief;
2. A probable right to relief; and
3. A probable injury.

Within the allegations contained in the lawsuit, Company A must set forth why a TRO is necessary. Those allegations must be verified; meaning someone from Company A must swear that the factual matters set forth are true. Company A should be prepared to file a bond assuming that the TRO is granted. Also, in Dallas County, unless there are extenuating circumstances, James must be provided with two hours notice of Company A’s intent to obtain the TRO.

In Dallas County, the lawyer will file the lawsuit and the clerk will put the newly filed lawsuit in a red jacket. The lawyer will take the red jacket to the judge who has been assigned the case. If the judge is not around, the lawyer will have to find another judge to consider the matter. There is no “live” evidence presented at a temporary restraining order hearing. The judge considers the lawsuit papers and the arguments of counsel.

Assuming the court finds in Company A’s favor, it will enter the TRO, set a bond amount, and set the injunction hearing for within 14 days. After the bond is posted, the clerk will then issue a citation for the original petition, notice of the TRO, and the TRO. At that point, Company A must serve James with the actual lawsuit and TRO. Once service has been completed, any violation of the TRO is treated like a contempt of court. In our next analysis, we will discuss the temporary injunction hearing.

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Non-Compete Agreements  / Placement Professionals

The Non-Compete Playbook: Preliminary Considerations
November 10, 2008

The Scenario
Assume the following: Jordan James, a successful legal recruiter employed at Company A has left to start her own placement firm. James signed a non-compete and non-solicitation with Company A and it is believed that James took her Microsoft Outlook contacts that contains all of her client information. What should Company A do and what should James anticipate?

Preliminary Considerations

(1) What are Company A’s objectives? Is James worth the time and money from a cost/benefit analysis? Is James competing with Company A a threat? Even if not, has she taken information that is important to Company A? The reality is James will be able to compete some day against Company A but she should not be able to with information that does not belong to her or in violation of her contractual covenants.

(2) Is the non-compete enforceable? Before Company A instructs its lawyer to file a lawsuit and obtain a temporary restraining order (discussed in next week’s entry), the next question should be what is the likelihood of enforceability of the non-compete? Obviously, no lawyer can predict what a Court can do, but they can give an educated guess. Hopefully, Company A already had this discussion with the lawyer who drafted the non-compete, but in many cases a lawyer wasn’t involved and the law changes.

(3) Are James’ documents in order? This includes any employment agreement, her employment file, and any company manuals that contain policies she is subject to. Can you capture (within the confines of the law) James’ most recent communications (email/phone messages) with clients? Is there any evidence of James’ contacting clients after her departure from Company A?

(4)What clients did James service? Were they serviced primarily by James or others at Company A? Would it make sense to contact the clients James worked with at Company A and let them know she has departed and who will be taking over her responsibilities? Not only will contacting them potentially protect business and preempt James, it is a means for developing allegations in a lawsuit and the basis for a temporary restraining order by finding out if she is talking to Company A clients and customers.

Next, the focus will be the filing of a lawsuit seeking a temporary restraining order.

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Non-Compete Agreements  / Non-Solicitation Agreements  / Placement Professionals

Texas Occupation Code Part 2
October 20, 2008

In a previous posting we discussed placement professionals’ obligations under Chapter 2501 of the Texas Occupations Code. There is only one reported case addressing this provision. In Joseph Chris Personnel Services, Inc. v. Donna Rossi, et al., Joseph Chris, a real estate recruiter, sued former employees for alleged breach of employment contract, breach of fiduciary duty, and violation of the Texas Occupations Code. Essentially, Joseph Chris claimed the Defendant employees started a competing recruiting company by taking information from the Joseph Chris database among other things. The Defendants did not reside in Texas.

Joseph Chris’ occupations code claim was based on the provision that provides an employee of a personnel services company “may not disclose information about an applicant, an employer, and employment position, or the operation of the personnel service.” The Court did not reach the merits of the claim because it ruled that the Texas Occupations Code did not apply to these non-Texas employees. There is no reported case that we are aware of, where a Plaintiff has alleged and a court has actually addressed whether a job candidate’s service file as defined within the occupations code as trade secret under Texas criminal law would qualify as a trade secret under the standards set forth by the Texas Supreme Court and discussed in the October 6th entry.

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Placement Professionals  / Trade Secrets

Placement Professionals
October 1, 2008

Today I had the opportunity to speak with the DFW Recruiters Network. Placement Professionals are faced with a variety of legal issues including covenants not to compete, non-solicitation covenants, anti-raid provisions, and the general enforceability of fee agreements with clients. All of these topics are the subject of this blog, but I wanted to take this opportunity to provide some helpful links to placement professionals.

Chapter 2501 of the Texas Occupations Code governs “Personnel Services”. Personnel Services “means a person who, regardless of whether for a fee, directly or indirectly attempts to obtain permanent employment for an applicant or obtains or attempts to obtain permanent employment for an employee.” Chapter 2501 places a number of requirements on those offering personnel services including a bond requirement, caps fees in certain circumstances, and sets forth a laundry list of 10 “Prohibited Practices”. A plaintiff who files a lawsuit and asserts a violation of the statute can obtain attorneys’ fees. Further, a violation of 2501 can also constitute a violation of the Texas Deceptive Trade Practices Act.

In terms of protection of placement professionals, 2501 states that a service file (defined as “a job order, resume, application, workpaper, or other record containing information related to: (A) an applicant; (B) an employer; (C) an employment position; or (D) the operation of a personnel service.”) is a Trade Secret pursuant to Section 31.05 of the Texas Penal Code, the Theft of Trade Secrets criminal statute. Thus an individual who attempts to take a service file from his or her employer could potentially be subject to not only civil proceedings but criminal as well.

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Placement Professionals  / Trade Secrets



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