Firm can pursue damages in competitor’s recruitment of workers

An Indianapolis-based civil engineering firm will have the opportunity to defend its demand for liquidated damages from three employees who allegedly violated non-recruitment agreements after the Indiana Court of Appeals reversed summary judgment for the firm’s competitor. The court also upheld the denial of summary judgment to the competitor on two additional claims stemming from its alleged impermissible recruitment of employees.   

After acquiring an ownership interest in his employer, American Structurepoint, Inc., in 2008, Marlin Knowles executed an employment agreement that, among other things, precluded him from recruiting ASI employees away from the company for two years. David Lancet and Jonathan Day signed similar agreements, and each were subject to a liquidated damages agreement if they breached the recruitment clauses. Another party to the instant appeal, former ASI employee Tom Mobley, was not required to execute an employment agreement.

Knowles resigned from ASI in May 2014 and began working for competitor HWC Engineering as vice president of operations. Knowles’ resignation began a series of resignations from ASI to HWC, with Knowles providing HWC with reviews of his former colleagues’ work. When Day joined HWC, he compiled a list of potential recruits from ASI, and Knowles commended him for that effort. Mobley and Lancet received HWC employment offers soon thereafter, but did not immediately leave ASI.

Another ASI employee eventually informed his boss that he was being recruited to HWC, prompting an investigation that led to Mobley and Lancet’s termination from ASI. ASI then filed a complaint against HWC, Knowles, Day, Mobley and Lancet, raising numerous claims including breach of contract, liquidated damages and tortious interference, among others.  The Marion Superior Court granted ASI’s motion for a preliminary injunction against Knowles, Lancet and Day, but denied the request as to Mobley. The injunction against Knowles was later dissolved, and the Indiana Court of Appeals upheld those rulings in November 2016.

HWC then moved for summary judgment, which the trial court granted on the issue of liquidated damages after finding the remedies clauses in the non-compete agreements were unenforceable penalties. But the court denied summary judgment on ASI’s claims regarding tortious interference and breach of employment.

Both parties brought interlocutory cross-appeals against those rulings, while a jury trial has been set for this month for all remaining counts. In a 43-page opinion handed down Wednesday, the Indiana Court of Appeals ruled against HWC on all counts.

First, the appellate court reversed summary judgment for HWC on the issue of liquidated damages, with Judge Margret Robb writing the ASI employment agreements were individually negotiated and specific to each employee, while the actual damages ASI suffered are difficult to ascertain due to the relational nature of the business.

“Whether or not the HWC Parties’ conduct caused ASI employees to leave ASI and/or ASI clients to terminate or reduce their business with ASI is a question of fact, the resolution of which will ultimately determine whether the liquidated damages set in the employment contracts are roughly proportionate to the actual damage ASI incurred by their loss as employees or clients,” Robb wrote.

But in a partially dissenting opinion, Judge Patricia Riley agreed with the trial court that the liquidated damages ASI sought — which exceeded $687,000 — were disproportionate.

“Essentially, ASI’s evidence of loss amounts to the cost of employee turnover that may be expected in any competitive market,” Riley wrote. “While I do not disagree that hiring seven new employees with the same skill set and earning potential would result in certain costs, any loss that may have resulted due to a breach of the employment contracts is clearly grossly disproportionate to the $687,351.79 sought in liquidated damages.”  

The case was remanded to the trial court for proceedings with regard to liquidated damages.

But the court was unanimous in its decision to uphold the denial of HWC’s motion for summary judgment on the tortious interference and breach of employment claims, pointing to conflicting evidence over whether HWC had a legitimate business purpose that justified its recruitment of ASI employees. The court similarly found a genuine issue of material fact as to the loss ASI suffered, precluding summary judgment on the breach of employment claims.

The case is American Consulting, Inc. d/b/a American Structurepoint, Inc. v. Hannum Wagle & Cline Engineering, Inc. d/b/a HWC Engineering, Inc., Marlin A. Knowles, Jr., Jonathan A. Day, Tom Mobley, and David Lancet, 49A02-1611-PL-2606.