Part 18 of “The Restricting Covenant” Series: Court Reporters and Covenants Not to Compete
Most litigators will attest that court reporters and transcribers are essential to the litigation process because they provide a verbatim record of depositions and other court proceedings. Court reporters are extremely patient, courteous, and obviously great listeners. Often times, we lawyers tend to have our “favorites” – you know, the court reporters who you work with repeatedly because they pick up your preferences and other linguistic quirks. I typically think of court reporters as “independent contractors” who would not be bound by traditional non-competition agreements. But when I learned about cases in some jurisdictions enforcing restrictive covenants involving court reporters, I had to write about a few of them in this eighteenth article of the Series.
A Massachusetts Court Enforced Non-Solicitation Restrictions in Court Reporter’s Employment Agreement
Dalia Owens had over 30 years of experience in the court-reporting industry. For more than half of her career, she was employed with court-reporting company F&S, and then LegaLink (which acquired F&S), where she learned the identities, special needs, and rates of LegaLink’s clientele. In 2004, Owens left LegaLink and joined Jones Reporting Company in an administrative capacity. Thereafter, about one-third of LegaLink’s 30 court reporters left to work with Jones Reporting. LegaLink sued Owens and Jones Reporting, alleging intentional interference with business relations and breach of her employment agreement that had non-competition, non-solicitation and non-disclosure provisions. Wordwave, Inc. v. Owens (2004).
On LegaLink’s motion for an injunction, the trial court analyzed the restrictive covenants in Owens’ employment agreement with this starting premise: “Concerns over unequal bargaining power, one’s right to employment, and the need to earn a living compel the law’s disfavorable view of restrictive covenants arising from an employment relationship.” Through this prism, the court applied the four factors that courts in many other jurisdictions commonly use to determine the enforceability of restrictive covenants: (1) Are the restrictions necessary to protect an employer’s legitimate business interest; (2) Are they reasonably tailored in time and geography; (3) Are they consistent with public policy; and (4) Are they supported by reasonable consideration?
With respect to the non-competition clause, which prohibited Owens from providing services in the shorthand and court-reporting industry in any capacity throughout New England for two years, the judge found this was “excessive” and “unreasonably broad.” The restrictions included states in which Owens had not worked with LegaLink’s clients or court reporters. LegaLink did not demonstrate to the court “how completely banning Owens’ employment in the industry, including administrative services devoid of client contact, would protect LegaLink’s interest in good will or confidential information.”
However, the court enforced the non-solicitation provision with a “blue pencil” reduction in the geographic scope from all of New England to within 50 miles from LegaLink’s Boston office. The judge found that “a court may likely find that given the competitive nature of the court reporting industry, LegaLink’s client lists and client preferences acquired over time are confidential,” and therefore “LegaLink’s interests in good will and confidential information coalesce into a legitimate business interest protected by the non-solicitation covenant.” The court found that because Owens had regular client contact and the opportunity to cultivate good will on LegaLink’s behalf, the two-year non-solicitation of LegaLink’s clients and court reporters “were narrowly-tailored and likely to be deemed reasonable a trial.”
One important caveat to note is that the Owens case pre-dated the new Noncompetition Agreement Act, M.G.L. c.149, §24L, in Massachusetts. This new law, which applies to non-competition agreements entered into after October 1, 2018, dramatically changes the restrictive covenant landscape for individuals and companies doing business in Massachusetts. Stay tuned for future articles in the Series highlighting some of the nuances of this new law.
A Connecticut Court Declined to Enjoin Two Independent Contractor Court Reporters
There were a lot of twists and turns in the court’s analysis in DelVecchio Reporting Services, LLC v. Edwards (2017), but ultimately a judge in Connecticut denied a motion for an injunction against two court reporters who signed an “Independent Court Reporter’s Agreement” with non-disclosure and non-solicitation provisions.
The central issues were whether the defendants should be enjoined (1) from soliciting the plaintiff’s clients (lawyers), (2) from accepting work from a national reporting service which was a significant referral source with DelVecchio’s company, and (3) from disclosing or using for their own benefit the pricing rates and business model that DelVecchio had used with them. The judge did not find the rates were confidential because DelVecchio had testified that he did not have exclusive contracts with his clients, that lawyers could discover his rates from talking to their colleagues who used DelVecchio, and that a good portion of his business involved providing court reporter services to national court reporting services who were free to use other court reporting firms and not bound by confidentiality agreements with DelVecchio.
According to the court, the “most difficult part of this case” was the non-solicitation provision, which prohibited the defendants from providing court reporting services to “‘any clients or prospective client of the company’ or to ‘call on, solicit, induce or take away or divert’ or ‘attempt to do any of this.’” The court found that, on its face, this restriction was unreasonable because it did not contain any geographic limitation. The court also concluded that there was “nothing unique or confidential in the list of customers” because they could be located in any business directory or the phone book. Finally, the court focused on the fact that the defendants were independent contractors and not employees, noting that “[t]o hone their skills the independent contractors who work for DelVecchio acquired nothing from the plaintiff company.”
A Texas Court Enforced a “Reformed” Non-Competition Provision in Translation Firm’s Salesman’s Employment Agreement
The first shot was fired when Brett Leslie told his employer TransPerfect, a translation firm, that he was leaving to work for direct competitor Merrill Brink International in Merrill’s Chicago office. TransPerfect Translations, Inc. v. Leslie (2009). TransPerfect hired Leslie as a Strategic Business Manager in its Georgia office, and thereafter created a new position for him as Director of Business Development in its then nascent e-Learning division in Texas.
TransPerfect sued Leslie, arguing that he breached his one-year non-compete agreement, and requested an injunction prohibiting him from working for Merrill in any geographic area that directly competed with TransPerfect’s business. Applying Texas law, the trial court initially found that the restrictions were “extremely broad” in scope because they prohibited competition in geographic areas where Leslie did not sell or attempt to sell for TransPerfect, noting that TransPerfect was a $200 million business with over 50 offices. The court explained that prohibiting Leslie from competing with TransPerfect “in any activities” in all of the states and countries in which TransPerfect maintains offices, without evidence that Leslie solicited and won clients in all of its business areas, was “unreasonable in both geographic area and scope of activity at the preliminary injunction stage.” See Part 14: Non-Competes and the Janitor Analogy.
However, because Section 15.51(c) of the Texas Business and Commerce Code gives a court the authority to “reform” a non-compete agreement if it finds that the non-compete is unreasonably broad in scope, the court entered a limited injunction. Specifically, the court retained the one-year limitation and geographic scope, but reduced the scope of business activities to cover only those customers to whom Leslie sold or attempted to sell in the e-Learning market, consistent with the scope of the goodwill TransPerfect stood to lose if the covenant were not enforced. In so doing, the court concluded that there was a substantial threat of irreparable harm to TransPerfect and that any potential injury to Leslie was minimal. It was undisputed that Leslie had received confidential information related to selling TransPerfect’s products and specific training on selling and marketing the e-Learning account. He had “intimate knowledge of TransPerfect’s e-Learning business strategies and clients.” The court made reference to cases that endorse the “inevitable disclosure” doctrine, which has been adopted in some jurisdictions (see Part III: Recipes and Restaurants), and explained that, “[w]here there is a high degree of similarity between the employee’s former and future employer, it becomes likely, although not certain, that the former’s confidential information will be used and disclosed in the course of his work.”