By Marjorie Johnson, J.D.
A factfinder must decide whether the competitor intentionally induced the drivers to work for it by offering superior terms and thus intentionally and improperly interfered with their employment agreements.
A long-haul trucking company convinced the Eighth Circuit to reinstate its lawsuit against a competitor who purportedly recruited and hired 167 of its truck drivers despite knowing they had signed employment contracts temporarily restricting their ability to work elsewhere in exchange for company-provided CDL training. Reversing summary judgment on the company’s claims for intentional interference with prospective economic advantage and unjust enrichment, a divided Eighth Circuit panel found that triable issues existed as to whether the competitor knew the drivers were under employment contracts, pursuant to which they received lower pay to offset training costs. And because it was disputed whether the competitor engaged in tortious conduct, a jury could also find that it “unjustly” retained the benefit of higher profits from hiring drivers that had been trained at the employer’s expense. Judge Stras dissented (CRST Expedited, Inc. v Transam Trucking, Inc., May 27, 2020, Shepherd, B.).
Employment agreements. The employer had developed its own driver-training program after determining that a primary cause of its shortage of long-haul drivers was the significant costs of obtaining the requisite commercial driver’s license (CDL). Under the program, it advanced the cost of CDL training in exchange for the drivers’ agreement to work for the company for at least 10 months (the restrictive term). Additionally, a noncompete provision barred the drivers from working for a competitor during that period. During those 10 months, they were paid a reduced rate so the company could partially recoup training costs but were then paid at the market rate.
Drivers left to work for competitor. This dispute involved 167 drivers who were subject to the employment contracts but left to work for a competitor that did not operate its own driver-training program. Instead, the competitor offered to reimburse recruits up to $6,000 for the cost of obtaining their CDLs, unless they were obtained through a training program offered by another trucking company. The competitor also did not ask its recruits if they were under contract with another company during the recruiting process, but verified prior employment upon hire as required by law. When it contacted the employer at that point, the company advised that the drivers were under contract and sent several warnings that it would not release them from their contracts, including a cease-and-desist letter, but the competitor hired the drivers anyway.
District court proceedings. The employer filed this lawsuit asserting intentional interference with a contract, unjust enrichment, and a third claim that was not at issue on appeal. The competitor moved to dismiss on the basis that the drivers were indispensable parties, but the district court disagreed and denied the motion. However, it subsequently granted its motion for summary judgment as to all claims.
Intentional interference with contract. Reviving the intentional interference with a contract claim, the Eighth Circuit found the district court erred in determining that no triable issue existed as to causation since there was no evidence the competitor induced the drivers to breach their contracts absent its involvement. Rather, there was sufficient evidence to conclude the competitor hired the drivers knowing not only that they were under contract, but also that the employer paid them less during their restrictive term. And evidence that the competitor’s reimbursement program did not extend to drivers who obtained their CDLs through programs operated by other trucking companies suggested that the drivers were particularly attractive since they had already been trained and licensed yet did not qualify for reimbursement.
Knowledge of compensation terms. While the competitor argued it lacked knowledge that it was offering the drivers better pay, the employer sent several notices informing it that they were under contract and referencing its other lawsuit involving similar claims. Yet the competitor continued to hire its drivers even after the instant lawsuit was filed. The various letters and the complaint in this case outlined the structure of the employer’s training program, including that the drivers were compensated below market rate so the employer could partially recoup the costs of the training program.
Induced to violate noncompete. However, the court rejected the employer’s contention that any prospective employer offering terms it knows are better than an employee’s fixed-term contract with his present employer commits tortious interference. Rather at issue was whether the competitor intentionally induced the drivers to work for it by offering superior terms, such that they would violate their noncompete provision, and thus intentionally and improperly interfered with their employment agreements. Here, a reasonable fact finder could conclude that the drivers would not have violated the noncompete provision absent the competitor’s act of hiring.
Valid contract. The competitor also argued that the employment agreements were not valid since the noncompete provision was an unenforceable restrictive covenant, but the Eighth Circuit disagreed. First, since the drivers did not seek to avoid the contract prior to the interference, the competitor’s voidable arguments were irrelevant. And even if Iowa courts would find a noncompete provision that amounts to a lifetime ban void as against public policy, the plain reading of the noncompete provision did not support such an interpretation.
Unjust enrichment. Also reinstating the employer’s unjust enrichment claim, the Eighth Circuit ruled that the district court erred in finding that the employer failed to demonstrate a benefit conferred on the competitor at its expense, which it would be unjust to retain. The competitor received the benefit of drivers who were trained at the employer’s expense, and the profits that it reaped as a result of hiring them were at least an indirect result of the employer’s financial investment in their training. The fact that the competitor did not have to reimburse them for training also provided larger profits from their labor. And because a factual dispute existed as to whether it engaged in tortious conduct, a jury could find that it “unjustly retained a benefit.”
Drivers not indispensable parties. Finally, the Eighth Circuit rejected the competitor’s argument, on cross-appeal, that the district court erred in denying its motion to dismiss on the basis that the drivers were not “indispensable” parties. Though the competitor argued that only the drivers had standing to challenge the reasonableness of the noncompete provision, an unreasonable noncompete provision would only make the provision voidable. Since a voidable contract supports an intentional interference claim, there could be no prejudice to the competitor or the drivers by not joining the drivers as parties in this case.
Dissent: no improper motive. Dissenting, Circuit Judge David Stras disagreed with the panel majority’s conclusion that the competitor’s actions could amount to tortious interference under Iowa law, opining that because there was no showing of an improper motive, the employer’s claims were properly dismissed. Offering a different analysis, he concluded that “without evidence of an improper motive, the court should not put the brakes on legitimate competition.”
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