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The 8th U.S. Circuit Court of Appeals recently concluded that a medical equipment manufacturer improperly poached a sales representative from its competitor and that the sales representative breached an employment contract in the process.
Biosense Webster Inc., a subsidiary of Johnson & Johnson, and St. Jude Medical are competitor manufacturers of medical equipment. Biosense actively recruited Jose de Castro and promised to defend him against any breach-of-contract claim St. Jude may file. It hired de Castro as a sales representative while he was working for St. Jude. St. Jude had previously entered into a three-year employment contract with de Castro that was not set to expire for another two years when he left. The agreement limited St. Jude’s ability to terminate de Castro, and it prevented de Castro from leaving during its term. Soon after de Castro joined Biosense, Sequoia Hospital, a large client of St. Jude, took its business to Biosense. St. Jude sued de Castro for breach of contract and Biosense for tortious interference.
The district court granted summary judgment to St. Jude on liability, concluding that de Castro breached his contract and that Biosense tortiously interfered with it. In a trial on the amount of damages, St. Jude prevailed; Biosense and de Castro were ordered to pay St. Jude the cost of replacing de Castro, lost profits from the Sequoia Hospital move and attorney fees.
Applying Minnesota law, which governed the agreement, the 8th Circuit explained on appeal that the employment arrangement between de Castro and St. Jude was a term-of-years employment contract rather than a restrictive covenant, because it was for a specific term and enforceable only by damages. Thus, according to the court, the employment agreement was not an open-ended restriction on de Castro’s ability to compete that could be reformed by the courts.
Regarding the tortious interference claim against Biosense, the 8th Circuit rejected the argument that St. Jude could not recover lost profits as damages. Instead, the court concluded that Minnesota law permits “a restitutionary remedy in a case in which the interference alleged was inducing an employee’s breach” of an employment agreement or fiduciary duties.
In this case, the court affirmed the lower court’s decision that sufficient evidence, in the form of a decline in St. Jude’s profits and a rise in Biosense’s profits after de Castro made the move to Biosense, existed to support the jury’s conclusion in favor of St. Jude.
St. Jude Medical S.C. Inc. v. Biosense Webster Inc., 8th Cir., No. 14-3886 (2016).
Professional Pointer: Recruiting employees away from a competitor can be risky. Employers should first determine whether an employment contract or noncompete agreement exists to best assess any risk in hiring the new employee.
Scott R. Eldridge is a senior principal attorney with the law firm Miller, Canfield, Paddock and Stone in Lansing, Mich.
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