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This article by Greene Espel attorney Faris Rashid first appeared on Law.com on July 29, 2020.
In a ruling on May 27, the U.S. Court of Appeals for the Eighth Circuit arguably lowered the threshold for tortious interference claims. A trucking company offered better compensation terms to a competitor’s employees, but did not specifically target those employees or otherwise take any specific action to cause those employees to leave the competitor. Even so, the court held, this evidence established a fact question as to whether the more attractive job offers caused the employees to breach their noncompete contracts.
There’s a decent chance that if an employee is being sued for breaching a noncompetition agreement, a lawsuit against the new employer for tortious interference isn’t far behind. In CRST Expedited v. TransAm Trucking, 960 F.3d 499, 502 (8th Cir. 2020), the court may have made it an even safer bet.
Plaintiff-appellant CRST Expedited, Inc. is a trucking company that struggled to find licensed drivers. In the long-haul trucking industry, drivers must obtain a commercial driver’s license (CDL), which the driver usually obtains by paying for a training program. The training costs became a barrier to entry, and CRST struggled to find drivers. To fix that, CRST created its own driver-training program that came with a deal: if a driver agreed to work for CRST a specified period, CRST would pay for that driver’s training tuition. Before starting the training, a driver would sign a pre-employment agreement agreeing that the training costs were an advance, and that the driver must later accept an employment contract if offered. After training, the driver agreed to work for CRST for at least 10 months at a discounted rate (to partially cover the training costs). The driver also agreed not to work for a competitor during this 10-month restricted term if they quit or were fired.
In this case, 167 drivers signed up for CRST’s program but left to work for a competitor, defendant-appellee TransAm Trucking, Inc., during their 10-month restricted terms. TransAm uses a more traditional model of recruiting drivers in which it advertises nationally and offers to pay new drivers up to $6,000 to obtain their CDL. TransAm, however, does not reimburse drivers who obtain their CDL through a training offered by another trucking company. After the 167 drivers joined TransAm, CRST sent multiple letters warning TransAm that CRST would not release its drivers from their contracts.
In April 2016, CRST filed suit against TransAm, alleging intentional interference with a contract, intentional interference with a prospective economic advantage, and unjust enrichment. Ultimately, the court granted summary judgment to TransAm on the claim of intentional interference with contract, holding that CRST had failed to establish causation. CRST appealed.
In Iowa, as in many jurisdictions, an intentional interference with contract claim has five elements: “plaintiff had a contract with a third-party; defendant knew of the contract; defendant intentionally and improperly interfered with the contract; the interference caused the third-party not to perform, or made performance more burdensome or expensive; and (5) damage to the plaintiff resulted.” See Green v. Racing Association of Central Iowa, 713 N.W.2d 234, 243 (Iowa 2006) (quoting Gibson v. ITT Hartford Insurance Co., 621 N.W.2d 388, 399 (Iowa 2001)). Here, the district court held that CRST had established fact questions on the first two elements, but failed to show causation. The district court declined to reach the remaining elements.
On appeal, the Eighth Circuit reversed the district court on its causation holding. Applying a traditional “but-for” causation analysis, the appellate court concluded that TransAm offered better compensation to CRST’s drivers in part because TransAm did not discount wages to recoup training costs, and that these offers prompted drivers to switch companies. TransAm argued against this result, stating that it could not have knowingly made better compensation offers because it did not know the terms of CRST’s driver contracts. The court rejected this argument, noting that knowledge and causation were different elements. The court also held that there was enough evidence in the record (through CRST’s demand letters and similar communications) to create a fact question as to TransAm’s knowledge.
The court distinguished between offering better compensation to employees bound by contracts with non-compete clauses, and those without. Based on the language of a Restatement (Second) of Torts, the court held that simply offering a better deal to a driver with an employment contract does not cause a wrongful breach of contract—such reasoning would restrict the free movement of labor. But if a driver is bound by a valid non-compete provision, then offering the driver a better compensation package could prompt them to breach that provision “without justification.” Because the job offer would cause a breach of a valid non-compete, it was thus also intentional and improper interference with contract.
Under the court’s holding, a defendant could be found liable for tortious interference if the defendant knew about the employee’s existing contract with the plaintiff and offered a better one. This could be true even if the employee voluntarily left the plaintiff before receiving the better offer, and even if the employee first initiated contact with the defendant. In this case, for example, some drivers left CRST before receiving an offer from TransAm. But CRST introduced evidence that drivers who voluntarily quit tended to later rejoin the company. Other drivers also contacted TransAm on their own, without having received an offer first. In both cases, the court held, a reasonable factfinder could conclude that the drivers would ultimately not have left CRST unless they had received TransAm’s job offers.
In his dissent on this holding, Judge Stras zeroed in on CRST’s inability to demonstrate improper interference with contract, which traditionally requires evidence of wrongful or improper motive on the defendant’s part. See, e.g., Green, 713 N.W.2d at 243. In this case, Stras wrote, “CRST has nothing.” He noted that there was no evidence that TransAm’s recruiting efforts, including a nationwide ad campaign, “were aimed at anything more nefarious than finding qualified drivers.” It would be one thing, Stras wrote, if TransAm had targeted CRST drivers and offered them special deals. But there was no evidence of such offers here; in fact, CRST drivers got something of a worse deal than others, since they would not be reimbursed for training tuition. Stras also wrote that the “mere existence of non-compete agreements” does not automatically establish improper interference without some evidence of improper motive. Noncompetes, like all contracts, only inform the parties of their obligations to each other.
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