The United States Court of Appeals for the Eighth Circuit (which oversees Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) recently overturned a multi-million-dollar jury award in a case involving two major trucking companies. The case centered around “poaching” drivers, which is a term that has been given to the practice of recruiting and hiring drivers who are under a contract or restrictive covenant with another trucking company.
Background
To help combat driver shortages, many trucking companies have begun offering driver training programs. Some trucking companies will advance the costs of the training to a driver in exchange for the driver’s agreement to enter into a contract to provide services exclusively to that company for a predetermined period of time. Trucking Company A had such a program.
Through its program, Trucking Company A advanced the cost of the training program to the drivers it hired but required that the drivers perform services for it exclusively for a period of 6 to 10 months at a reduced wage rate to make up for the cost of the program. These drivers were hired as at-will employees. The drivers could cancel their contract at any time but would still have to wait until the expiration of that remaining time period to perform services for another trucking company. Alternatively, the drivers could pay the remaining amount due for the training program to get out of the remaining time period.
Trucking Company B recruited CDL-licensed drivers using general advertisements and required potential employees to initiate contact with it. While a driver was under contract with Trucking Company A, if that driver applied to work for Trucking Company B, Trucking Company B would receive a notice that the driver was under contract with Trucking Company A and that Trucking Company A would not release that driver from his contractual commitment. Previously, Trucking Company B would end the hiring process if it received that notice. However, as the driver shortage gained steam and to meet its hiring goals, Trucking Company B began to hire drivers even after it received a notice from Trucking Company A.
Trucking Company A sued Trucking Company B under Iowa state law, alleging among other things, intentional interference with contracts. Following a 6-day trial, a jury awarded Trucking Company A over $15 million. That award was later reduced to $6 million. Both trucking companies appealed the decision.
Appellate Court’s Decision
On appeal, the Appellate Court reversed the lower court’s decision in favor of Trucking Company A. The Appellate Court found that, under Iowa law, to prove intentional interference with a contract, it must be proven that a company intentionally and improperly caused an employee to violate his covenant not to compete. Merely hiring a competitor’s at-will employee to further the company’s legitimate competitive interest is not enough.
The Appellate Court focused on two issues. First, the Appellate court noted that hiring a driver under a covenant was not enough to violate the covenant because it was only actually driving for Trucking Company B that created a violation of the covenant. In doing so, the Appellate Court further noted that Trucking Company A failed to show whether the drivers performed the obligations under the covenant, including paying off the remaining debt for the driving school, prior to actually driving for Trucking Company B. As such, the Appellate Court noted that an at-will employee has a right to accept employment by a competitor at any time.
Second, the Appellate Court noted that offering employment to a competitor’s at-will employee is not interference with contract. To prove intentional interference with a binding non-compete, the interference must be intentional and improper. Advancement of one’s own economic interests, without more, is not enough. The Appellate Court found that Trucking Company B’s inducement to hire Trucking Company A’s drivers would have to show that Trucking Company B was encouraging the drivers not to reimburse Trucking Company A for the training costs or violate the covenant in another way. The Appellate Court provided an example of such action: sending a targeted message to the drivers telling them that they would get a deal from Trucking Company B if they violated the covenant with Trucking Company A. But the Appellate Court noted here that Trucking Company B used its normal advertising and recruiting procedure. As such, the Appellate Court found that this was merely a product of the free labor market created by at-will employment.
Takeaway
While this case was decided under Iowa state law, it is a major decision that will make waves throughout the trucking community. Notably, the case did not strike down restrictive covenants or the practice of requiring drivers to reimburse a trucking company for its training program. Instead, it places potential limits on the practice, at least under Iowa or similar State laws. This includes allowing drivers who are in restrictive covenants to be solicited for employment (under general advertising methods) and hired by competitors. Trucking companies may still seek damages from competitors to the extent that a driver does not complete the terms of his restrictive covenant when he starts driving for the competitor. All motors carriers who have a program for advancing training costs with a follow-up contract with a restrictive covenant, and particularly those who are operating under Iowa state law, should carefully reexamine their restrictive covenants in light of these developments.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.