“Clean Hands” Enables Defensible Hiring Practices Despite Non-Competes

Friday, September 20, 2013 - 11:31

The Editor interviews Non-Compete & Trade Secrets Group Co-Heads John P. Barry, Partner, and Mark A. Saloman, Special Employment Litigation Counsel, in the Labor & Employment Law Department of the Newark, NJ office of Proskauer Rose LLP.

Editor: Please tell our readers about your professional backgrounds.

Barry: We both serve as co-heads of Proskauer’s Non-Compete & Trade Secrets Group, an interdisciplinary team that provides counsel and litigates for clients on employee movement between competitors and in particular addresses covenants on non-competition, non-solicitation, and confidentiality agreements. We work out of the firm’s New Jersey office, and our practice includes clients across the country in many jurisdictions.

Saloman: I am Special Employment Litigation Counsel and also handle client counseling and litigation concerning post-employment restraints, non-compete agreements, and other restrictive covenants. Recently, we secured significant victories on behalf of Sientra, Inc., a start-up medical device manufacturer with a portfolio that includes a new breast implant product, in a lawsuit brought by Sientra’s competitor, Mentor Worldwide, LLC.

Editor: Please share with our readers the facts of the dispute between Sientra and Mentor Worldwide.

Barry: On March 9, 2012, Sientra, which is based in Santa Barbara, California, received FDA approval for a line of breast implant products, making it only the third company in the United States that is authorized to sell such products. At that time, they hired 20 sales representatives from one of their competitors, Mentor Worldwide, which is one of Johnson & Johnson’s 250 operating companies.

Two weeks later, Mentor simultaneously filed 13 lawsuits around the country attempting to prevent 15 of those departing employees from working for Sientra. In seven of those cases, Mentor also sought injunctive relief. We were successful in defeating each of those injunctive applications, and every one of those employees was allowed to continue to work for Sientra.

Despite our wins, Mentor then filed its 14th lawsuit in California on June 8, 2012 against Sientra and Jeffrey Lewis, who had been Mentor’s West Coast Regional Director of Sales.  Mentor asserted claims of unfair competition, misappropriation of trade secrets, intentional interference with contract and prospective advantage, and breach of fiduciary duty, among others.

Editor: What trade secrets were alleged to have been violated?

Saloman: The trade secrets at issue were not technical or scientific but sales-oriented.  Mentor alleged that Lewis and other former employees took customer lists and pricing information, as well as the contact information of Mentor’s customers, who are well-known plastic surgeons. Of particular concern, Mentor accused the departing employees of taking materials that were handed out at a training meeting held the previous January. We demonstrated and the jury agreed that nothing confidential was taken or disclosed or used by anyone after they left Mentor for Sientra.

Editor: I understand Sientra followed certain compliance procedures in preparation for any non-compete allegations Mentor might make.

Barry: Sientra implemented a “Clean Hands” process, which was designed to ensure that any prospective hire did not take any confidential or proprietary information from Mentor; did not distribute or share it with any Sientra personnel; did not use or rely upon it once their employment at Sientra began; and that all property belonging to Mentor was promptly returned to Mentor when they left.

The process had both oral and written components. Upon meeting a prospective hire, Sientra made clear that he or she would be working for a competitor and that it was important that he or she protect information from their current employer.  In short, Sientra would not ask for information about Mentor, nor would the prospect give Sientra any such information. The prospective hire was then told that if he/she was uncomfortable with these ground rules, the interview would be over. Further, if a hire violated those rules at any time in the future, his or her employment would be terminated.

These directives were then put in writing and sent to every person after the initial interview. Similar language was also incorporated into each offer letter. And each hire was required to return everything in their possession belonging to Mentor and document the returned items by following a comprehensive checklist. Some employees returned upwards of 50 boxes of material; one employee returned a refrigerator-sized box weighing more than 100 pounds. Electronic files were returned as well. Importantly, Sientra followed up even after the hires began working at Sientra to ensure full compliance with the “Clean Hands” process.

Saloman: The extent of the search conducted by these hires, and that they collectively returned close to 400 boxes to Mentor was remarkable. They looked in their home offices, garages, basements, car trunks, for anything left behind. One even looked in his kids’ backpacks. The jury also found Sientra’s consistent messaging about compliance with the Clean Hands process to be compelling.

Barry: It is one thing to have documentation; it is another to comply with it. Rather than having a lower-level employee deliver the message, Sientra’s Founder and CEO Hani Zeini spoke with almost every hire and repeatedly stressed the importance of compliance. I think the jurors were amazed when they heard each of the employees on the stand describe the same process.

Editor: To what degree was it necessary to employ forensic technology in this case?

Saloman: The former Mentor employees worked at home, remotely accessing Mentor’s network from laptops provided by Mentor. By returning every Mentor laptop through the Clean Hands process, the former employees allowed Mentor to conduct a prompt and comprehensive forensic analysis that proved that Mentor’s electronic data was intact and not misappropriated.  Sientra also examined the home computers and external hard drives of some of the new hires to resolve concerns that old Mentor data fragments or documents might be lodged in unallocated space or buried elsewhere deep in the machinery. 

Editor: The enforcement of non-compete clauses varies from state to state. Did you find this to be true in this case, which involved employees in ten different states?

Barry: Yes, the laws of each of the 11 jurisdictions where Mentor filed suit are very different. From the outset, I was very mindful of this, knowing a winning argument in one jurisdiction might actually cause me to lose in another and that what I represented in one location could be used against me later. Our adversaries in these cases did not approach it the same way. Though Mentor used the same law firm everywhere, that firm used different lawyers arguing in each jurisdiction – from Portland, Oregon to Indianapolis to Boston to Denver – and they were contradicting each other. I then read these discrepancies to the different judges, who were not appreciative of the fact that Mentor’s lawyers were essentially playing legal games. That cemented our credibility, which put us at a distinct advantage.

Editor: Meanwhile, were you able to develop a coherent strategy despite these different attitudes towards non-competes?

Barry: Yes, that is our area of expertise. We looked very closely at the rules in each jurisdiction to decide what would work in each and developed a uniform strategy accordingly.

Mentor had threatened Sientra years earlier, when it hired a few Mentor employees. With the possibility of a lawsuit looming, Sientra brought us in early so we were prepared well in advance for what would transpire. We ordinarily get the call after the hiring is done and then must react to whatever the facts are. But with Sientra, we were able to provide counsel in advance. They took what we said to heart and implemented robust compliance procedures, which made all the difference.

If a company is looking to hire people from another company – especially a competitor – it is critical to make sure those folks are “clean.” That is, they are not doing anything that could even suggest that they are leaving for an improper reason, such as to take information belonging to their current employer. They have every right to leave as long as they do it the right way. Prospective employers should be mindful of this.

Editor: I understand the jury responded very favorably to you. To what do you attribute this?

Barry: First, we focused on the “Clean Hands” process, which we knew was compelling proof of Sientra’s due diligence. Second, we were very streamlined, prepared, and professional. The other side took six and a half weeks to present their case and got so bogged down in meaningless tangents that I believe the jury became frustrated.

Meanwhile, we presented our entire case in fewer than 10 days. We got our witnesses on and off the stand. There were many different stories involved but, by honing in on what was relevant, we kept the case moving and held the jurors’ interest. For their part, the jury greatly appreciated the fact that we valued and respected their time.

Saloman: Yes, when opposing counsel began a line of direct examination with the question, “Where were you born?” I presume that the jury felt that Mentor was wasting their time.

Editor: This case demonstrates how complex matters involve many disciplines. How were you able to develop a coherent strategy encompassing all of these various practice area issues?

Saloman: Our non-compete and trade secret practice is intertwined with our employment practice, so we immediately recognized that the employer/employee relationship would be the centerpiece of our strategy. From there, we took the time needed to learn the business in order to identify the pressure points that would be most advantageous to the global defense of all of the cases.  When you have been doing this work as long as we have, that process becomes faster and faster.

Barry: While it is critical for us to understand the nuances of what goes on in this field, in the context of a jury trial we have to be able to translate that knowledge into something relatable to the jurors.  Throughout the trial, we made sure to introduce testimony that allowed the jurors to relate to each witness and, through them, connect with Sientra and what Sientra was trying to do.

For example, during the “Clean Hands” process, Sientra had everyone return their documents to Mentor via FedEx.  That allowed us to introduce dozens and dozens of FedEx receipts as trial exhibits to prove that the new hires did the right thing.

We also spoke about questionable decisions made by Mentor’s upper management in 2011 and early 2012 such that 20 people would independently decide to leave in the first place. Naturally, that is going to be a question a juror would have, though it might not be completely relevant to a legal analysis. We built some of these human elements into our case and they were compelling.

Editor: Do you think the resolution of this dispute sends any kind of signal to companies?

Barry: I think the signal goes in two directions. On one hand, if employees leave and do damage in the process – i.e., if they take information or solicit coworkers or customers – that is inappropriate and unacceptable. Companies that lose employees should look closely at what happened and, if they have evidence of untoward behavior, they can seek redress (there are other mechanisms besides litigation as well). On the other hand, if companies do things correctly – implementing and complying with a “Clean Hands” policy, for example – then effective trial counsel will make a jury see that.

Saloman: I agree. The key takeaway is that doing the right thing is not a guarantee that you will not be sued, but that puts you in the best position to defend yourself down the road.

Please email the interviewees at jbarry@proskauer.com and msaloman@proskauer.com with questions about this interview.