Consistent with its recent rulings involving restrictive covenants, the Arizona Court of Appeals again skeptically examined a post-employment restrictive covenant and held unenforceable a covenant not to solicit the former employer’s employees. The unpublished decision in Quicken Loans v. Beale et al
. was issued May 13, 2014.
The case stems from a lawsuit by Quicken Loans against seven of its former employees for breaching a non-solicitation of employees covenant and a non-compete covenant after the seven employees joined a competitor, loanDepot. Schneider & Onofry’s Michelle Swann
and Luane Rosen
represented the employees in the lawsuit and the appeal.
The non-solicitation covenants lasted for two years post-termination and prohibited former Quicken Loans employees from communicating with current Quicken Loans employees and employees of approximately 40 other companies owned by Quicken Loans. Quicken Loans’ agreement defined prohibited “communication” so broadly that one was precluded from conversations about any job opportunities, even if those opportunities have nothing to do with mortgage-related industries.
The employees prevailed at trial, and Quicken Loans appealed.
The Court of Appeals examined the covenant not to solicit employees under the same standards applicable to covenants not to compete. The Court held that the covenants were unenforceable as a matter of law in Arizona and in Michigan, where Quicken Loans is based.
First, the two-year prohibition was found to be overbroad because it unreasonably exceeded the time that Quicken Loans needed to protect its business interests or its confidential information. Second, the communication ban was overbroad because it prohibited communication on subjects beyond Quicken Loans’ proprietary customer or company information.
The Court concluded that the former employees were entitled to recover their attorneys’ fees, even though the fees had actually been paid by their new employer, loanDepot, who intervened in the case and was also awarded attorneys’ fees.
The litigation also resulted in a newsworthy 2013 National Labor Relations Board (NLRB) companion case. There, one of the former employees in the legal action discussed above filed a complaint with the NLRB because the Quicken Loans employment agreement contained broad confidentiality and non-disparagement agreements. The employees were required to hold and maintain information designated by Quicken Loans as confidential and proprietary, including employees’ personal information, such as telephone numbers and email addresses. The non-disparagement clause prohibited employees from publicly criticizing Quicken Loans or its policies or employees.
After investigating the charge, the NLRB’s acting general counsel determined that the restrictions violated Section 7 rights. The administrative law judge agreed, finding that Quicken Loans unlawfully prohibited employees from engaging in protected speech, including publicly speaking against Quicken Loans.
represented the former employee in that matter. On November 3,2014, the NLRB reaffirmed the administrative law judge’s ruling.