The Eighth Circuit Puts the Brakes on Legitimate Competition

Non-Compete, Intentional Interference, Employment Agreements, Legitimate Competition

Does a new hire having a non-compete expose the hiring firm to liability for improper interference, even where the new hire contacted the firm in response to general advertising and there was no targeted recruiting? The answer appears to be yes, at least according to a recent decision by the U.S. Court of Appeals for the Eighth Circuit. 

In CRST Expedited, Inc. v. TransAm Trucking, Inc.,[1] the Court ruled that the record contained sufficient evidence to support a finding that TransAm Trucking, Inc. (“TransAm”) intentionally and improperly interfered with CRST Expedited, Inc. (“CRST”) employment contracts by hiring truck drivers under contract with CRST. All this despite the fact that TransAm’s “recruitment” of the drivers was limited to nationwide advertising and internet postings through which prospective drivers themselves initiated contact with TransAm.

The Employers’ Differing Business Models and the Lawsuit

Plaintiff CRST, a long-haul trucking company, had a training program under which it advanced the cost of obtaining a commercial driver’s license (“CDL”) for its prospective drivers. CRST then paid drivers a reduced rate to partially recoup the costs of this training program. CRST employment contracts contained non-compete provisions under which drivers agreed not to work for any competitor during a ten-month period, which presumably was enough time for CRST to recoup the training expenses.

Defendant TransAm did not have its own training program. It simply offered to reimburse its recruits for the cost of obtaining their CDLs but did not extend this offer to drivers who obtained their CDLs through another company’s training program. TransAm recruited drivers by using standardized, nationwide advertising methods, including magazine and radio ads and postings on online job boards, TransAm’s website, and social media platforms. Drivers must contact TransAm to begin the hiring process.

The lawsuit involved 167 drivers who were subject to the CRST employment contract but left to work for TransAm. Essentially, these 167 drivers obtained a CDL through CRST’s driver-training program but left to join TransAm—motivated presumably by the fact that the drivers did not want to be compensated at CRST’s lower rate of pay for the first ten months of their employment. After sending several letters detailing its drivers’ contractual obligations, CRST sued TransAm for intentional interference with a contract, among other claims.

The Eighth Circuit’s Analysis and the Importance of the Non-Compete

On appeal, the Eight Circuit determined that TransAm induced CRST drivers “by offer of better terms.” Id. at 504. In so finding, the Court determined TransAm acted with knowledge that its driver agreements provided for a higher rate of pay and CRST-trained drivers were less expensive to employ as they required no reimbursement for the cost of obtaining a CDL.

The Court relied heavily on the existence of the non-compete in CRST’s employment contracts—its existence essentially set this case apart from a situation of proper competition. In fact, for the Eighth Circuit, the ultimate question was “whether TransAm intentionally induced the drivers to work for TransAm, by offering superior terms, in an activity that would mean violation by the drivers of the non-compete provision, and thus intentionally and improperly interfered with the CRST contract.” Id. at 506. In other words, TransAm intentionally interfered with CRST employment contracts if it offered better terms, while knowing about, and causing the violation of CRST-driver non-compete obligations.

The Dissent and TransAm’s Motive—or Lack of One

In a dissent, Circuit Judge Stras disagreed with the Court’s analysis and conclusion. For Judge Stras, “[t]ortious interference with contract is not about favoring some business models over others… [but] is about deterring improper interference with contracts.” Id. at 510 (emphasis in original). Accordingly, since there was no evidence that TransAm’s recruiting efforts, including its nationwide advertisements, were aimed at anything more nefarious than finding qualified drivers, any interference from TransAm was not improper.

Judge Stras argued that the most important factor in determining whether TransAm acted improperly was motive. As TransAm did not specifically target CRST drivers or offer them a “special” deal, TransAm utterly lacked an improper motive. At end, Judge Stras viewed the case as nothing more than a conflict between two competing business models, and without evidence of an improper motive, the Court’s ruling merely “put the brakes on legitimate competition.” Id. at 512.

Non-Competes Remain a Powerful Tool for Employers

The non-compete landscape is changing rapidly in many states, and some courts are reluctant to enforce restrictive covenants—even carefully tailored ones. Nevertheless, the Eighth Circuit’s decision should remind companies looking to hire that non-competes still have teeth.

When appropriately drafted and supported by adequate consideration, restrictive covenants can have long-ranging effects and not just with respect to the employee signing the agreement. After learning of a recruit’s obligations to his or her former company, employers must be careful.

[1] 960 F.3d 499 (8th Cir. 2020)

Chase M. Hundman is an attorney in Howard & Howard’s Chicago office. He concentrates his practice on business and employment law, including complex contract disputes and non-compete litigation.

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