On September 9, 2016, the Pennsylvania Superior Court upheld an award of $4.5 million in punitive damages against several former employees, who violated non-compete/non-solicitation agreements with their former employers. In B.G. Balmer & Co. Inc. v. Frank Crystal & Co., Inc., et al., the court determined that among other things, the former employees’ used confidential information and trade secrets they obtained during their employment to solicit more than twenty-five of their former employer’s more profitable clients. The actions of the former employees were also in violation of the non-solicitation provisions contained in their employment agreements. The Superior Court’s full opinion can be found here.
In affirming the $4.5M punitive damages award, the Superior Court found that there was extensive evidence showing the blatant efforts of the former employees to lure away other Bamler employees as well as clients. More specifically, the Court noted that the former Executive Vice President and President of Strategic Planning formulated a plan with the new employer, a competing insurance brokerage agency, to entice other employees to leave and work for the new company. As part of this plan, the former employees were encouraged to bring clients and customers with them after they departed their employment.
During the process of finalizing the planned departure, the new company was made aware that each of the employees were subject to the non-solicitation restrictions within their employment agreements. Despite knowing this, the new company extended offers to all Balmer sales and marketing employees, which represented all Balmer’s employees other than the owner himself. Prior to resigning from employment, several of the employees took confidential information and trade secrets including client lists and insurance policy details. Shortly after receiving employment offers, all of the employees resigned from Balmer and utilized the confidential information and trade secrets to attempt to solicit and/or transfer clients’ to the new company.
The Superior Court affirmed the trial court’s finding that such conduct was sufficiently outrageous to award punitive damages. This decision is a reminder for employers about the potential value post-employment restrictive covenants, like non-solicitation provisions, have in protecting their workforce and customer/client base. While punitive damages may not always be warranted as they were in the Balmer case, employers who utilize enforceable restrictive covenants like non-solicitation provisions, may be entitled to injunctive relieve as well as some form of compensatory and other damages when former employees breach restrictive covenants.
From a different perspective, this case is also a warning of the potential risks associated with hiring employees who may be subject to post-employment restrictions such as non-solicitation provisions. When hiring new employees who are subject to restrictive covenants, employers would be well advised to understand the limitations imposed by such covenants and provide the new employee with specific directives to avoid any form of conduct that may be in violation of the restrictive covenants. A failure to abide by the limitations of an enforceable restrictive covenant, may lead to exposure.