In a recent opinion, our Federal courts provided a framework for evaluating the enforcement of non-solicitation agreements in this age of increasing growth of digital or electronic based companies that have a broader geographical presence than their traditional brick and mortar predecessors.
The Court’s announced analysis begins with the fundamental concept that court jurisdiction over a defendant-employee must be based on the employee having at least some minimal regular contacts with the location where the suit is brought. With electronic commerce now permitting a more flexible and broader geographic scope of what constitutes “conducting business”, the Court felt it necessary to add an additional layer of analytics that factors in 1) the position or level of the employee, and 2) the specific legal theory being advanced by the plaintiff-employer.
In Numeric Analytics, LLC, the plaintiff-employer was based in Chadds Ford, Pennsylvania, and attempted to sue its ex-president and four other former employees in Pennsylvania in contract and in tort for violating their non-solicitation agreements when the ex-employees attempted to set up their own competing consulting company. The president and the employees lived in Ohio, Wisconsin, Virginia and Colorado. Numeric Analytics did business nationwide, with the majority of its employees working in Colorado, but the administrative functions such as payroll and retirement were all processed in Pennsylvania. As a result of this digital model, the employee – defendants sought to have the case dismissed in Pennsylvania on the basis of a lack of jurisdiction.
The Court decided as a general matter that as all the essential functions, such as payroll and client billing, that allowed the defendants to earn a living beyond “informational communications” such as isolated phone calls or letters, were conducted out of Chadds Ford, there were sufficient contacts in Pennsylvania under the totality of the circumstances to find that the defendants had “purposefully directed” their employment activities in Pennsylvania such that jurisdiction under a contract theory in Pennsylvania was justified. It should also be noted ironically that the defendants had all executed agreements that included a Pennsylvania choice of law clause but did not include a choice of forum provision.
The Court, however, found the analysis slightly more complicated for the plaintiff-employer’s various tort actions, such as breach of loyalty, breach of fiduciary duty, and tortious interference. The Court held that these claims were in part driven by the position that the employee in question held within the Company. Under this analysis, the critical question becomes where the Company has borne the brunt of the harm and where was the location of the focal point of the defendant-employees’ activity. Here, the Court found that with the exception of the former President, jurisdiction in Pennsylvania was not warranted as there was no indication that Pennsylvania had borne any specific injury as a result of the (non-President) defendant-employees’ actions, as their employment efforts were national in nature. Likewise, the Court found that none of these lower level employees had aimed any of their conduct in establishing new employment specifically at Pennsylvania.
The analysis of the president, however, was different in regards to the tort claims alleging breach of duties, as her liability arose out of her “status” as opposed to her “conduct”, and that this status was inextricably bound to the plaintiff-employer’s headquarters in Pennsylvania. In essence, the Court held that corporate officership is distinguishable from regular employment, with fiduciary duties of the corporate officership toward the headquarters, wherever it is situated, that cannot be renounced.
Likewise, the Court found that the tortious inference claim arose from the ex-president’s status as a corporate officer rather than conduct that “reached” into Pennsylvania. With this analysis, the Court asserted jurisdiction over the contract claims of the employer against all the defendants, but only retained jurisdiction over the tort claims against the ex-president. The take away from the Numeric Analytic decision is that in assessing proper jurisdiction of a non-solicitation agreement in Pennsylvania in the new digital age, considerations such as the level of the employee and the nature of the claim are factors that are now more critical than ever.
The Eastern Pennsylvania Employment Log (EPELog) is a publication of the KingSpry Employment Law Practice Group. Jeffrey T. Tucker, Esquire, is our editor-in-chief. EPELog is meant to be informational and does not constitute legal advice.
