Alert: California Supreme Court Warns Against Predatory Recruiting
August 18, 2004
The California Supreme Court has reversed recent California caselaw to hold that employers may sue in tort for interference with their contractual relations with at-will employees. Previously, the California Court of Appeals had held that at-will employees, but not their employers, could bring such actions. In Reeves v. Hanlon, the California Supreme Court held that employers enjoy that right as well. To bring such an action, however, employers will need to show that the luring party engaged in some form of “independently wrongful act.”
In Reeves, a law firm sued its former partners alleging that, in the course of their departure, they had improperly persuaded its employees to join their new law firm, as well as solicited plaintiffs’ clients with deceptive suggestions that the firm was going out of business, misappropriated trade secrets, and destroyed client records, computer files and data. Plaintiff’s legal theories included intentional interference with contractual relationships, interference with prospective business opportunity, conspiracy to interfere with prospective economic advantage, misappropriation of confidential information in violation of the Uniform Trade Secrets Act (“UTSA”), unauthorized use of a corporate car, and destruction of corporate property.
In affirming a trial verdict finding intentional interference with the employment relations, the court noted factual findings that (1) the firm had employed the employees at issue at will; (2) defendants had “mounted a campaign against the Reeves firm involving destruction of computer records, misuse of confidential information, and unethical conduct, of which the cultivation of employee discontent was only a component,” and that the “campaign unfairly impaired the firm’s ability to retain its employees.” The remaining issue before the court was whether an employer could bring an action for interference with its at-will employment relationships. In GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc., 83 Cal.App.4th 409 (2000), a court had held that California’s public policy favoring employee mobility required that only the employee could bring such an action. The California Supreme Court disagreed, affirming the jury verdict that plaintiffs were entitled to recover recruiting expenses ($20,000) attributable to mitigate damages.
Consistent with cases finding contract interference in other contexts, the Reeves court held that “to recover for a defendant’s interference with an at-will employment relation, a plaintiff must plead and prove that the defendant engaged in an independently wrongful act (i.e., an act ‘proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard’ that induced an at-will employee to leave the plaintiff). Under this standard, a defendant is not subject to liability for intentional interference if the interference consists merely of extending a job offer that induces an employee to terminate his or her at-will employment.”
The Reeves decision, however, did not fully explore what type or degree of wrong constitutes “an independently wrongful act.” The court had little difficulty finding that the trade secret misappropriation, client solicitation and property destruction involved in that case were sufficiently unlawful and unethical to justify liability. Generally, cases finding interference have focused upon similar unlawful activities apparently designed to cripple the plaintiff’s business. Recruiting employers will want to consider the legality and ethics of their behavior (as well as that of the recruited employees) in light of the Reeves decision.
For more information about this or other employment-related matters, please contact Doug Dexter at (415) 954-4409 or at ddexter@fbm.com, or any member of the Farella Braun + Martel Employment Practice Group.