Editor’s Note: The Spring 2008 edition of the MMM Review addressed the scenario of departing executives from the company’s perspective. This article addresses the scenario from the departing executives’ perspective.
You are one of the Senior Vice Presidents of a successful insurance company (the “Company”). You serve as the head of the Company’s Property Facultative (Prop Fac) reinsurance division. You just celebrated your thirty-year anniversary with the Company. Your contributions helped build one of the strongest Prop Fac divisions in the industry. Your team works well together. They like working for you. Unfortunately, many of them are considering leaving the Company.
Last year, the Company was acquired. With the acquisition came new management. They do not care how things were done in the past. They do not care that you have thirty years of experience. They want things done their way, and their way differs significantly from your way. Employees who complain are largely ignored.
Recently, one of the Company’s largest competitors approached you to lead a new Prop Fac division. After long and careful deliberation, you decided to accept the job.
Because this is a new division, it has no employees or infrastructure. Although this move is an exciting opportunity, you are not sure where to start. Can you start looking for talent from your old team? Can you look for business by soliciting your old clients? Can you use the structure and business strategies you developed at your former employer? What should you do?
Prior to proceeding any further, you should:
- Obtain copies of all agreements you signed with the Company during your tenure. The Company should have provided copies at or around the time you signed them. If you do not have copies, you should request them.
- Determine what obligations you may have to the Company both before and after your employment terminates. At your level of management, the agreements are likely to contain restrictions on your ability to use or disclose the company’s confidential information and trade secrets, use or disclose customer information, recruit company employees, solicit the company’s customers, and/or compete against the company.
- Engage (or have your prospective new employer engage) a lawyer experienced in restrictive covenants, trade secrets and employee duties to review the agreement and provide advice on how to proceed. The lawyer should also review any agreements the Company may have with any other
employees you would like to hire. Laws regarding restrictive covenants vary from state to state, and are constantly changing. The lawyer will be able to decide whether the agreements would be enforceable in the state in which the Company would seek to enforce them and will be able to advise you about your legal options. Those options may include filing a declaratory judgment action to have the covenants deemed invalid by a court. - When you leave the Company, do not take any Company property with you unless the Company has given its express written consent for you to do so. Do not (i) download information from the Company server, (ii) copy your email box, (iii) forward your emails to an outside account, or (iv) take your rolodex or contact database. Return all Company property, documents, and data, whether in written or electronic form, and advise any employees you hire to do the same. Obtain written confirmation/inventory from the Company that you have returned property and information.
Following these steps may help you and your new employer avoid the kind of lawsuit initiated by General Reinsurance (“Gen Re”) against former executives who went to work for a competitor. General Reinsurance Corporation v. Arch Capital Group, LTD. et al., Case No. X05cv07011668S (October 17, 2007). Several Gen Re executives dissatisfied with their work circumstances collectively began exploring options for employment elsewhere. One executive took the lead in discussing opportunities with some of Gen Re’s competitors. He also took the liberty of discussing some of Gen Re’s confidential and proprietary information including, the amount of money Gen Re could “put up” on any single risk, the substance of a conversation with Gen Re’s CEO about its future business strategy, statistics about Gen Re’s historical and recent profit ratio, employee productivity, its maximum and average risk size, salary and compensation structure, the number of outstanding reinsurance certificates, total annual premiums, its five largest clients, and the number of Gen Re’s reinsurance certificates that were sold without competitive bidding. Id. at *11-*13. The Court found all of these actions to be improper. Further, the executive discussed the possibility of “extracting” forty of Gen Re’s Prop Fac employees and targeting the same clients they served at Gen Re. Id. at 11.
Gen Re sued the employees for breach of fiduciary duty, tortious interference with contract and business expectancies, and alleged violations of a state Unfair Trade Practices Act. The discovery process exposed many of the improper conversations the executives had during their job search. “Essentially, Gen Re charged the individual defendants plotted to move a substantial portion of [its Prop Fac] business to [their new employer] along with [Gen Re’s] personnel, trade secrets, proprietary information and business plan and charged that all were, and are, planning to use these assets to unfairly create and operate out of whole cloth a business competitive to Gen Re’s [Prop Fac] division.” Id. at *3.
The court agreed with Gen Re regarding the bulk of these claims and granted a temporary injunction in its favor. However, although a large portion of Gen Re’s Prop Fac division employees also left to join their former bosses in the competitor’s employ, the court determined that the executives had not engaged in any improper activities with respect to the employees. Because the executives did not ask the employees to join them at the competitor, their conduct was lawful; they simply told the employees they were leaving to join the competitor. The employees left Gen Re of their volition and none of them had contracts prohibiting their employment with a competitor.
Following the steps outlined above will help a departing executive avoid many of the mistakes made by the Gen Re executives. Leaving your current employer is hard enough. Don’t become the next poster child for what not to do when departing!
Jason D’Cruz is a partner in the firm’s employment law practice group. Mr. D’Cruz practices in the areas of employment law, executive compensation, and restrictive covenant litigation. Mr. D’Cruz received his bachelor’s degree from St. Louis University and his law degree from Wake Forest University.
E. Abena Antwi is an associate in the firm’s employment group. Prior to joining Morris, Manning & Martin, Ms. Antwi clerked in BellSouth Corporation’s legal department and the Wayne County Prosecutor’s Office in Detroit, MI. Ms. Antwi received her bachelor’s degree from Duke University, and law degree from University of North Carolina School of Law.