A multimillion-dollar 2019 judgment that CRST won against Swift over the issue of its hire of hundreds of drivers has been overturned on appeal, with the appellate court citing a decision last year in a separate case in which CRST mostly prevailed.
The consistent thread in the divergent decisions is the question of whether hiring another company’s drivers who are under a noncompete agreement constitutes “intentional interference.”
The suit that CRST filed against Swift (NYSE: KNX) resulted in an initial verdict of just over $15 million, which was later reduced by $3 million, according to court documents. On the basis of the latest ruling, the U.S. Court of Appeals for the 8th Circuit, which includes Iowa, where the case was first filed, ordered the case remanded to the district court and that a judgment for Swift be entered, which would wipe out the award to CRST.
On a broader basis, the decision to overturn the verdict against Swift is seen by some legal experts as having possibly established a precedent that will make it more difficult for companies to enforce noncompete clauses. CRST had such an arrangement with its driver trainees.
While the order by the appeals court touches on several issues, the irony is the intersection between a ruling in the TransAm case of May 2020, in which CRST again was the plaintiff. At issue in that case was the identical issue CRST had with Swift: CRST’s claim that it had lost drivers to TransAm whom CRST had trained and who were under a 10-month noncompete clause that had not run its course at the time the drivers departed.
TransAm was granted summary judgment dismissing CRST’s claims. But an appellate court in that case — also the 8th Circuit — reversed the summary judgment and remanded the case to the district court, a victory for CRST.
The CRST training program at the heart of the dispute, according to court documents, involves an advance of tuition and other expenses in exchange for the driver to commit to work for CRST for at least 10 months. There is also a noncompete provision in which the driver can’t work for another carrier during the 10 months if he or she leaves voluntarily or is dismissed. At the end of the period, according to the documents, the driver is considered “at-will” and is paid normal pay rates, as opposed to the lower levels paid during training to cover educational costs.
In both the TransAm and the Swift conflicts, CRST became aware of the possible departure of its drivers when the two carriers sought employment confirmation from CRST.
The link between the two legal decisions, and why the TransAm decision that mostly favored CRST came back to help Swift in its case against CRST, involves the legal definition of intentional interference. A key question is whether the companies hiring the CRST-trained drivers were acting in their normal capacity to put drivers behind the wheel or whether they were encouraging the drivers to violate their noncompete provisions, which could be seen as “tortious interference.”
The appeals court in the TransAm case had overturned a lower court ruling that held TransAm had not engaged in interference, because — according to a recap of the case in the Swift ruling — “CRST presented substantial evidence from which a reasonable juror” could conclude that TransAm knew what it was doing and was effectively asking the drivers to break their noncompete clauses. That was a victory for CRST.
But the Swift decision notes that the appeals court in the TransAm case also “rejected CRST’s contention that any prospective employer offering terms it knows are better than an employee’s fixed-term contract with his present employer commits tortious interference with that contract.”
So although CRST was victorious overall in having its initial loss to TransAm reversed and the case kicked back to the lower court, it also established a legal doctrine that proved problematic for it in the Swift case. (The TransAm case ultimately was settled out of court).
In the CRST lower court victory over Swift in 2019, a motion by Swift to be granted summary judgment on the question of intentional interference was denied. “The district court denied Swift’s post-verdict motion solely because Swift’s motive in hiring the 246 drivers was to engage in competition by hiring drivers who had noncompetes by offering them a higher pay rate,” the appeals court in the Swift case wrote. Given that such a motive is now viewed as not enough to find intentional interference, based on the TransAm case a year earlier, the court’s earlier denial of Swift’s motion is now contrary to the TransAm decision’s clarification of the interference definition, the court wrote. “Therefore, we must reverse,” it said.
One issue raised in determining whether there was interference by Swift was whether drivers in the 10-month window who moved to Swift reimbursed CRST for the cost of their training. While the issue surfaced in the lower court case, the arguments made by CRST weren’t specific enough for the appellate court’s satisfaction.
In the lower court, “[CRST’s] evidence did not not address whether any of the 246 contract drivers reimbursed CRST after being hired by Swift but before providing truck driving services,” the appellate court said.
That led the appellate court to two conclusions. One, since the question of whether it was reimbursed wasn’t addressed individually, CRST could not prove any breach of the driver contract, because an at-will employee can join another employer at any time.
And following from that, a company like Swift “offering employment to a competitor’s at-will employee is not actionable interference with the contract.”
The decision in the Swift case also takes aim at noncompete clauses. In dealing with the question of whether Swift had benefited from “unjust enrichment,” the appellate court noted that there was no proof CRST had not been reimbursed for the training or that Swift was guilty of interference.
Given that, the court wrote, “all we have is a claim that an employer who lawfully employs a worker who has been trained by a prior employer is unjustly enriched by the benefit of the employee’s service.”
CRST has “no authority for that proposition.” If it did, the court wrote, it would “substantially deter worker mobility that strengthens our economy and enhances the ability of all workers to succeed,” a finding that appears to take aim at noncompete clauses that do restrict the ability of workers to move from job to job.