On October 21 2011, Groupon, Inc. sued two former sales managers who left their employment with Groupon to join a competing venture, Google Offers, which was allegedly started by Google after its unsuccessful attempt to buy Groupon. The lawsuit, which was filed in Chicago, Illinois, accuses the two former employees of breaching their employment agreements and alleges that the former employees took and will be called on to divulge Groupon’s trade secrets and confidential business information in the course of their new employment with Google. The lawsuit also alleges that the two former employees breached a non-compete provision in their employment agreements by going to work for a direct competitor within 24 months of the termination of their employment with Groupon.
One of the former employees is alleged to have emailed Groupon customer and business information to a personal email account on the day he resigned. The lawsuit requests the Court to enjoin the defendants from, among other things, using this information in their new employment. Further details about this lawsuit can be found at here.
One thing to remember is that the applicable state law is key in a lawsuit such as this one. Under Illinois law, a court can enforce a restrictive non-compete agreement if its terms are reasonable to protect a legitimate business interest of the employer. This is not the case in California. Under California law, a non-compete provision is almost always unenforceable in an employment agreement. Had this lawsuit been filed in California, it is almost certain that the court would dismiss the breach of contract claims arising out of the employment agreement’s non-compete provisions. (See “Often But Not Always Void” in this blog.)
Also, neither Google nor Google Offers are named as defendants in this lawsuit (yet). There may be several strategic reasons for this. First, any injunction issued by a court against the two former Groupon employees will likely contain language enjoining not only them, but “any person acting in concert with them.” This could bind Google (or at least restrict its ability to employ the two former Groupon employees) without Groupon having to litigate directly against Google. Second, Groupon could be using the case against its two former employees to conduct discovery to determine whether Google has any potential liability before suing Google.
This lawsuit highlights the pitfalls that can arise when hiring employees from a direct competitor.