Michigan Business Court Leaves Open Possibility that Former Employer’s Conduct may Constitute Tortious Interference with Business Relations when trying to Enforce Employment Agreement’s Non-Competition Clause

In this recent Michigan Business Court case, Judge Jon Van Allsburg addressed the interesting issue of whether a former employer might be liable for tortious interference with business relations when pursuing enforcement of a non-competition agreement. A copy of the court’s opinion in Franklin Metal Trading Corp. v. Soule can be found here.

Franklin Metal Trading Corp was in the metal sale and recycling business. Robert Soule worked for Franklin as an account executive. After 18 years, Soule left Franklin to work for a competitor, Metal Source, located three hours from Franklin.

Soule’s employment agreement provided, among other things, a non-disclosure section and a non-competition section:

“9. Nondisclosure. Mr. Soule will not, directly or indirectly, disclose to any person any Confidential Information … ‘Confidential Information’ refers to all information and materials belonging to, used by or in the possession of Franklin Metal relating to its business strategies, pricing, customers, technology, programs, costs, employee compensation, marketing plans, developmental plans, computer programs, computer systems, inventions, developments, formulae, processes, designs, drawings and trade secrets of every kind and nature.”

“10. Noncompetition. Mr. Soule specifically agrees … for a period of one (1) year after his employment with Franklin Metal terminates … he will not directly or indirectly … :

(a) Divert or attempt to divert business from Franklin Metal or engage in any act which causes or is likely to cause any present or future customer or supplier of Franklin Metal to discontinue or curtail its business with Franklin Metal or to do business with another entity firm, business or enterprise directly or indirectly competitive with the Company.

(b) Contact, sell to, or solicit, any past or present customer of Franklin Metal in order to sell products or services competitive with those sold by the Company.”

Before leaving Franklin, Soule “emailed to himself contact information for plaintiff’s insurance representative and five or six of plaintiff’s approximately 100 customers.” Franklin initially wished Soule well in his new job, and Franklin’s president even sent Soule a congratulatory email on beginning employment with Metal Source, never raising the employment agreement as an objection to employment.

A few weeks later, however, Franklin wrote to both Soule and Metal Source that Soule’s new employment violated the non-disclosure and non-competition sections of the Franklin-Soule employment agreement. In that same letter, Franklin took the position that Soule was prohibited from working for Metal Source and soliciting customers for one year, and that Soule had solicited numerous customers and taken extensive amounts of confidential and proprietary information. Moreover, Franklin demanded that Metal Source terminate Soule, among other things. Metal Source terminated Soule just a few days later.

Franklin still brought suit against Soule, and obtained a preliminary injunction. Soule counterclaimed for tortious interference with business relations. Franklin moved to dismiss the counterclaim. The court’s opinion focused on whether Soule could plead “intentional and improper interference by [Franklin], inducing or causing a breach, disruption, or termination of the business relationship” with Metal Source.

There was no question that Franklin had demanded Soule’s “discharge and had the clear intention of interfering with defendant’s business relationship.” Franklin took that position “that acting to enforce the non-competition provision and to protect its confidential information was a

legitimate business purpose and cannot, as a matter of law, be deemed improper interference.” Soule countered “that the non-competition provision of the Employment Agreement does not prohibit his employment with a competitor, but only defendant’s solicitation and diversion of customers.” Soule argued that under the employment agreement he could in fact work for Metal Source, within certain limitations. Therefore, Franklin’s written representation to Metal Source that Soule’s hiring alone violated the employment agreement and “required his discharge were intentionally false.”

The court ultimately agreed that Soule potentially stated a claim, first observing that “action taken in furtherance of a proper business purpose is not an ‘impenetrable blanket of immunity,’ or a ‘miracle cure making all that was wrong, right,’ but is just one of several factors to be considered in assessing whether the interferer acted properly.” Citing the Restatement (Second) of Torts, Judge Van Allsburg states “’[t]he issue is not simply whether the actor is justified in causing the harm, but rather whether he is justified in causing it in the manner in which he does cause it.’” In this case, Franklin’s “act may or may not have been motivated solely by its legitimate business purpose, and that business purpose may or may not have justified the extent of plaintiffs demands.” Thus, the court concluded, that Franklin’s “act is subject to defendant’s claim that it was improper.”

The court further observed “the term ‘improper’ as required to support a claim of tortious interference may be a lawful act done with malice and unjustified in law. Malice, in the legal sense, is the intentional doing of a wrongful act without justification or excuse.” Additionally, “improper conduct” is defined as “illegal, unethical, or fraudulent conduct.” Thus, Soule’s allegation that Franklin sent Metal Source a letter demanding his termination, “while knowing it to contain false statements clearly alleges unethical conduct.”

In sum, taking the counterclaims in the light most favorable to Soule, he alleges “an affirmative, specific, unethical, intentional act of improper interference in that plaintiffs … letter to Metal Source contained intentionally false statements, among them the assertion that defendant’s employment with Metal Source violated ¶ 10 of the Employment Agreement and required his discharge. Defendant also alleges plaintiff’s improper motive for the interference, i.e., achieving his discharge when it was not warranted or justified by ¶10.”

Posted by Lee Applebaum