VARs Collide Over Recruiting Practices

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Allegations of improper hiring practices are pitting two major solution providers against each other in court.

The case helps illustrate the importance to solution providers and their employees of non-compete and non-solicitation clauses in employment agreements, especially for those who are growing by mergers and acquisitions.

Softchoice, a Toronto-based solution provider with a large presence across the U.S., last month filed lawsuits in Minnesota and Virginia against the rival En Pointe Technologies, alleging that the Los Angeles-based company illegally hired certain Softchoice personnel.

Some of those employees, Softchoice alleged in the lawsuits, then recruited customers and copied proprietary information for En Pointe while still employed by Softchoice.

En Pointe did not respond to several requests from ChannelWeb for coment.

En Pointe provides midmarket and enterprise accounts, government agencies, and educational institutions with computer hardware, software, information security, and managed and professional services.

Both solution providers are Microsoft LARs (large account resellers).

Kirsten Thompson, Softchoice general counsel, said the lawsuits stem from the fact that En Pointe likes to hire Softchoice employees because of the amount of time and resources her company invests in training them. "They're very good," Thompson said.

However, she said En Pointe went farther than following proper hiring practices, as alleged in the lawsuits.

The standard Softchoice employee agreement does not include non-compete clauses, but it does stipulate that employees cannot solicit Softchoice employees or customers on behalf of competitors for a period of 12 months after leaving the company, Thompson said.

However, Softchoice recently made three back-to-back acquisitions -- NexInnovations in November, Software Plus in December, and Optimus in January -- and so the employee agreements with employees who joined as a result of those acquisitions vary in their terms. Some of those contracts include non-compete clauses in addition to the non-solicit terms and confidentiality provisions similar to the existing Softchoice terms, Thompson said.

Softchoice, like other companies, occasionally hires employees from its competitors, Thompson said.

"It's a small industry," she said. "When we approach potential hires, we look at their non-competes first. These things are often limited in terms of geography or time. If the non-compete is for three months, for instance, we can have the employee do something else during that time. Or we can send them to a different geography or to do a different job. We also notify our competitor and invite them to follow up with us if they have any concerns. We give them the necessary reassurances. And we instruct new employees to follow all their and#91;previous employers'and#93; agreements."

In the Minnesota lawsuit, filed in the U.S. District Court of the County of Hennepin on June 25, 2008, Softchoice alleged that En Pointe competed illegally against Softchoice in its hiring of two employees, Martin Schmidt and Michael Johnson, as part of a scheme to "increase its revenue by hiring Softchoice employees for the purpose of stealing the very kind of confidential information it forbids its own employees even to discuss with others," according to the Minnesota lawsuit.

Softchoice also alleged that En Pointe has relied on a "'business model' of raiding competitors in general, and Plaintiff Softchoice in particular, of experienced sales representatives," according to the complaint.

Schmidt, who joined Softchoice as a result of that company's $45 million acquisition of St. Louis-based Software Plus last December, had a non-compete agreement that carried over after the acquisition forbidding him from undertaking or attempting to engage in any business directly or indirectly competing with Software Plus for a period of two years following his termination of employment. That agreement specifically prohibited Schmidt from working with or being affiliated with another Microsoft LAR, according to the complaint.

Johnson joined Softchoice in 2001, and was promoted to branch manager in Minneapolis in early 2007, at which time he was required to sign a non-solicitation agreement preventing him from soliciting Softchoice customers and vendors within 12 months of leaving the company, according to the complaint.

Both Schmidt and Johnson resigned from Softchoice in December of 2007 and immediately went to work at En Pointe, which prior to their being hired, told the two that their employment agreements with Softchoice were unenforceable, according to the complaint. En Pointe then worked with Schmidt and Johnson to solicit Softchoice customers, resulting in the loss of two major accounts in Minnesota due to these actions, Softchoice alleged in the complaint.

In the Virginia lawsuit, filed in the Circuit Court for the City of Norfolk, Va., Softchoice is suing En Pointe, along with employees Holly Griffen and Andrew Clements, alleging "statutory conspiracy, violation of the Virginia Computer Crimes Act, breach of fiduciary duty, breach of contract, and other claims."

According to the Virginia complaint, both Griffen and Clements worked in Softchoice's Hampton Roads, Va. office and worked with customers both locally and across the nation, and were privy to confidential and proprietary information belonging to Softchoice.

Both defendants were contracted to abide by Softchoice's rules and policies, including the stipulation in the Softchoice Handbook that "all confidential information belongs to Softchoice and you are not to disclose this information to anyone, except in the performance of your job or as required by law, whether during your employment at Softchoice or at any time after you leave," according to the complaint.

Softchoice alleged that Clements, in the Spring of 2007 told a subordinate that he intended to leave Softchoice by year-end, and that he left the company to go to work for En Pointe during the Summer of 2007. Before he told Softchoice he was resigning, however, Clements tried to recruit other Softchoice employees including Griffen to work for En Point, according to the complaint.

During that time, Clements also told Microsoft that he planned to leave for En Pointe, Softchoice alleged in the complaint. Clements also assured a Softchoice regional manager in late August that he would consider staying with Softchoice, but later on the same day he sent confidential information to En Pointe and then resigned, Softchoice alleged. He also returned to the office to attempt to recruit two other Softchoice employees, including Griffen, according to the complaint.

Griffen submitted her resignation to Softchoice on September 17, 2007 to go to work for En Pointe. However, before leaving she contacted several Softchoice customers for the purpose of soliciting their business for En Pointe, told Microsoft that she was leaving in order to divert business from Softchoice to En Pointe, and printed confidential Softchoice documents the company said had no legitimate need to be printed as they were available to her from the Softchoice office computer system, Softchoice alleged in the complaint.

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