CVS Hire Blocked by Walmart
By Tom Ryan
Walmart last week sued CVS to prevent the drugstore chain from
hiring a former regional head, becoming the latest executive shuffle embroiled
in a non-compete clause.
In its lawsuit filed in Delaware Chancery Court, Walmart
said Hank Mullany, who was hired by Walmart in 2006, signed a non-compete
agreement in December 2009 when we has promoted to president of Walmart North.
The agreement effectively barred him from joining a competitor for two years
after leaving Walmart, according to the suit. He resigned in October and left
Walmart in November. On Dec. 3, CVS said he was hired as president of CVS/pharmacy.
On Friday, the judge overseeing the case blocked Mr. Mullany, who was scheduled
to start at CVS on Monday, from taking his new post until after a Dec. 15 court
hearing.
Walmart in its suit said that Mr. Mullany, who oversaw 587 Walmart
doors in 13 states, was "privy" to Walmart’s national strategies
and responsible for implementing them in the northeast. In particular, he was
the "executive
sponsor" of Walmart’s plans to develop smaller (10,000 and 20,000
sq. ft.) stores to reach more urban areas.
"Mullany was the executive sponsor
of Walmart’s ‘smaller-format’ strategy,
and was intimately involved in all facets of Walmart’s pilot ‘smaller-format’ program,
including merchandising, store layout, pricing strategies, and real estate
issues, as well as plans to roll out Walmart’s ‘smaller-format’ plan
on a larger scale," the complaint states, according to the Financial
Times.
In an e-mailed statement sent to Bloomberg News, a CVS spokesperson
said, "The
company and Mr. Mullany believe the allegations in the lawsuit are without
merit" and "intend
to aggressively defend the lawsuit."
Another article in The Philadelphia
Inquirer exploring a non-compete
lawsuit involving a sales team from a medical supply starting a competing company
indicated that such cases are on the rise. In an improving economy, hiring
firms are more willing to absorb the litigation costs in fighting a non-compete
clause to gain a star recruit. With the cases often coming down to interpreting
the strict guidelines of such clauses, they often settle favorably on the interest
of enabling someone to earn a living.
But the Inquirer article also stated
that with trade secrets now easily transferable via laptops and e-mails, more
are being decided on behalf of the former employer.
In one high-profile case
earlier this year, Bimbo Bakeries USA, which owns Thomas’ English muffins,
successfully prevented a former executive from joining Hostess Brands. The
suit stated that the executive was one of only seven people who knew the recipe
that gives English muffins their "nooks and crannies."
Discussion Questions: Do you tend to side with the ex-employer or the ex-employee
in situations involving non-compete clauses? Are there positions at retail
that you think should usually be subject to non-compete clauses?
- Walmart Sues CVS Over Hiring of Former VP Mullany – Bloomberg News
- CVS Caremark Appoints Hank Mullany as President of CVS/pharmacy – CVS
- Walmart sues CVS over top executive – The Financial Times
- Employee confidentiality a bigger issue in a tougher economy – The
Philadelphia Inquirer - A Man With Muffin Secrets, but No Job With Them – The New York Times
No-compete agreements are an unreasonable way to go in today’s retail and CPG environment for a number of reasons:
1. Employees and executives alike need to earn a living and the most likely place to do that is in the industry in which they have skills, knowledge, and training.
2. The CPG and retail business today have fewer employers than in the past.
3. Confidentiality and non disclosure are far more critical than no-compete.
4. Employment and stability is far too unpredictable and inconsistent to demand non-competes from employees and executives. Employers are not able to offer fair and reasonable security for the employee in exchange for non-competes.
5. It’s unusual for an employee, or even an executive, to be able today to hurt his or her former employer by working for some other employer in the CPG or retail industry. There simply are not enough meaningful ways to use that past employer’s knowledge to hurt them anymore.
I am always amazed at the employment contracts that some people sign! It can be exhilarating joining a new organization but be careful with what you sign. I do find the 2 year clause too long. The industry norm is one year and that’s what should have been in the contract. BUT…a contract is a contract. If you sign it, you should live by its terms. Contracts exist to protect both parties. No party should unilaterally cherry pick what it likes and doesn’t like after the fact. All in all, I side with employer because the employer is merely enforcing an employment contract the employee signed.
Every company wants to preserve its vital business secrets. Ironically, secrets usually have a life span of about 20 seconds. Every employee wants freedom to take advantage of presented personal opportunities. Ironically, that can subject integrity and loyalty to expediencies.
The practice of indenturing one’s paid servants would seem to go against human nature. Most everyone seems willing to accepted greater rewards and put integrity and loyalty aside when they can follow the flow of greener dollars. Thus I tend to side with neither the ex-employer or ex-employee.
I side with the employee. In the spirit of full disclosure I have to admit that I was one of those enthusiastic new employees who signed a non-compete and did not realize that I had done so. It might have been “nice” for the employer to suggest I have an attorney read the multitude of documents I was signing that day. But I was an executive and should have known better.
I truly thought a non-disclosure statement was just that. What I didn’t realize is that it was an all in one document which included non-disclosure and non-compete language. My bad. And I suffered the consequences.
While I don’t excuse myself I still believe it would have been appropriate for the employer to separate out that document from health care benefits and tax information. Why wouldn’t the employer want to clearly identify a non-compete requirement? Or is that a rhetorical question?
I agree with the comments that “two years are too many.” Strategies developed this year are no secret next year. That said, some companies include in their compensation consideration for a two year separation.
Lesson to the wise…Read what you sign and be prepared to live with it.
I admit I am conflicted on this in that I can see both sides. Companies have intellectual property that they would like to protect and people have a right to earn a living. As Mr. Biernbaum pointed out, NDAs and confidentiality agreements might be must critical in protecting trade secrets. However, as was also pointed out secrets don’t last very long.
We all hope everyone is honest but if they are not, nothing is going to prevent them from taking information from their former to their new employer. Technology has made this very easy to do. One can only hope the new employer did specifically target an employee for this reason.
I believe that once you sign a contract you should have to live by it. However, the reality is that there are fewer opportunities to move in a consolidated business environment such as retail. In that case the parties can do what is happening in this situation and let the court decide.
If the ex employee was moving to Target or a grocer, then the case is clear cut. There don’t appear to be many secrets to Walmart’s pharmacy programs and CVS is probably not viewed as a primary grocery competitor. So I am neutral–let the individual situation dictate the outcome.
It is tough to prevent someone from earning a living. With consolidation in the CPG industry (as with other industries) it is hard to leave a company and find a new place to work that does not overlap your old employer. Where could Mr. Mullany go to work if Walmart was not a strong fit for him and earn at least the same amount?
If Walmart wants to prevent Mr. Mullany from working at a competitor for 2 years then they need to pay him to sit on the sidelines for those two years. Even then, it is tough to side with Walmart since Mr. Mullany would be less desirable after two years on the sidelines.
There is no easy answer to this question. My hope is Mr. Mullany is a professional and respects his former employer by not sharing trade secrets he was privy to at Walmart prior to his departure. In 12 months anything Mr. Mullany knew would be out of date everyone can move on.
No conflict here. Non-competes make sense (maybe) if there is significant intellectual property being transferred–something patentable–but for a retail regional manager (that’s what this job essentially is, it just has a bigger title)? Seriously?
Walmart is just trying to put some teeth in what has been an almost unenforceable document, the non-compete. I have been on the end of one of these and had friends who worked for the same particularly litigious company on the end of them as well. A punitive, unnecessary bit of nastiness.
Seriously? A regional manager? Wow.
The problem is that if you don’t sign the employment agreement that includes the non-compete you don’t get the job. The theory that getting the job is consideration for the non-compete is a myth. Perhaps the courts should look at this issue as illegal “tying.” I might have more sympathy for Walmart if this employee took a job at Target, but while CVS and Walmart are both retailers and thus “compete” on some level, I find it hard to believe that either CVS or Walmart pay much attention to the other when making business decisions.
A contract is a contract and he should have been better advised when he entered into it. My struggle with this is the one-way loyalty street–employees at all levels must remain loyal to the company up until the day the company decides their services are no longer needed.
If a company wants to avoid the need for such non compete agreements treat their employees as a valued asset and not a herd of sheep, provide a good working environment, and foster an engaging workplace.
Retail industry employee turnover is amongst the highest of any industry I consult in. Walmart has some leverage because of their size and hold on many markets but as this article indicates, they are not immune to losing key players.
I would have to side with the employer if the employee did sign a non-compete agreement. However any employee that signs a non-compete agreement that doesn’t pay them full salary until the non-compete period is over, is nuts.
We have to deal with this all the time in the consulting business. I rarely agree to such terms unless I’m getting a very lucrative project. The last time I lost a six figure gig because of a conflict of interest was in the Caribbean. [The client] would have required I quit my day job with one of their very tiny competitors in Wisconsin that had nothing to do with their deal in the Caribbean. Tough decision but I decided not to quit my regular paycheck.
Ah, the sturm and drang of the non-compete. In the end, this is just another field day for the lawyers. Years ago, there was a very well-known executive who left one major retailer to work for another. After both companies ran up enormous legal fees, the executive was paid $1 million to NOT work for a year. When the year was up, the company he was going to work for was purchased by the company he had left. His contract was then bought out by the purchasing company for multi-$millions.
A bigger question is, if the employee does not have to abide by the non-compete, what provisions does he/she have to abide by?
One one hand, there are only so many places you can work in retail, especially after you get to a certain level. So, finding a job in a company that does not violate a non-compete can be tough. On the other hand, retailers have strategies planned out for as much as a year in advance, so there are inside secrets and processes that the person takes with them that make them more attractive to a future employer.
Oh Pullleese! I am not sure that making this person suffer is going to really make or break these big retailers. Let people work. I think non-compete agreements should be illegal, as they benefit companies over workers every time. Non-disclosure is different–that can make sense.
I’d be astounded if CVS wasn’t completely aware of the non-compete “wrinkle” when it extended its offer to Mr. Mullany. Cost of doing business, I suppose. I hope his talents are worth the trouble.
I’m not a fan of such clauses in employment contracts, since they may enable unreasonable or punitive restrictions upon the employee’s career. For top-level executives, however, one may be acceptable if sufficient compensation and protections are offered in return and if it specifies a reasonable duration. Any executive contemplating an employment contract must insist on its review by competent legal counsel and negotiate accordingly. Any employer who resists or hurries this essential step is suspect by definition.
Like some others in this discussion, I tend to believe that there are very few true strategic secrets with a shelf life of longer than 60 days. Non-competes serve one primary purpose–they are a cudgel to wield against competitors who may try to poach executive talent. The defector is often punished as collateral damage.
Non-disclosure agreements are slightly different, less troubling animal. NDAs are a fact of life for many middle managers and they are often embedded in consulting contracts. I’ve signed a number over the years. I invoke three principles when considering these:
1) Client proprietary information stays proprietary, no matter what.
2) Exclusivity has a price.
3) If there is no NDA in place, or it’s weak, or poorly worded, or non-exclusive, see #1.
I think non compete agreements should be narrow documents that deal with specific protected issues. Unfortunately most employers force employees to sign boilerplate documents that are not reasonable and in most cases are not enforced by the courts. I suspect that the proprietary information that this executive has at his fingertips has already been reported in 2 or 3 trade journals. Any competent attorney can find at least 6 employees who have left Walmart in the last five years and gone to work for the competition (Who doesn’t compete with Walmart?) who have not been sued. And as for the “top secret” smaller store format–we have been reading about this for a number of years.
Some of our commentators–specifically those who say “a contract is a contract”–need a refresher course in common law, since non-compete clauses are (essentially) unenforceable in many states.
But as a general rule, unless some proprietary info in being misused, non-competes are hard to justify: they effectively prevent someone from working, and act to diminish competition…perhaps good for the company in question, but hardly good for the rest of us.
Interesting timing for Walmart as the U.S. Supreme Court agreed to hear arguments whether to certify a class-action lawsuit against the company over alleged gender bias in pay and promotions. It would be the largest class-action employment in U.S. history.
While the efficacy and enforcement of non-competes is complicated, Mr. Mullany appears to have violated the terms, especially since he was tasked with expanding the company’s small store format. This was a big gamble for him that could squeeze him out of a job altogether.
I don’t think the point is the contract. I don’t think the point is whether it is enforceable or not. I think the point is who has the bigger wallet and can Walmart make Mr. Mullany pay enough for it to be too painful. In the meantime, CVS will talk tough. But, let’s face it, Walmart’s wallet is bigger.
This one will quietly go away. CVS will find Mr. Mullanay valuable some time in the future. Walmart will live with something less that two years. All parties wallets will be thinner, but Walmart’s was thicker in the beginning. It matters not who wins. It’s about making it painful enough for Mr. Mullany and CVS while all knowing it’s unenforceable. The cost of getting to that conclusion is all in favor of Walmart. It’s about being willing to lose and making it costly and sending a message.
If Walmart wants to limit an ex employee for 2 years, then they should pay them! When one signs a non compete, it is as a condition of employment. Sounds silly, but it could be argued that one signs it under “duress.” Especially in these times.
I think non-competes should only be enforceable as long as the employee is getting paid. If you get six months of severance then you have a six month non-compete. Non disclosure is important and needs to be enforced. Of course, I am waiting for the secret to the English Muffin nooks and crannies to be released on WikiLeaks any day now.
Where there is a non compete, I agree the non compete should be in sync with the severance or agreed to pay when the two part company. Where there is a non compete, both parties should agree to honor the signed document. Sadly, I say this as I side heavily with the employee unless he knows the secret formula to Coke or the crannies in the English muffin.
Slavery ended in this country over one hundred years ago. Unless a company is willing to employ someone until death, the contract is usually “at will” despite what is signed. What was the incentive given to keep this employee off the market?