Week 8 (2020)
Week of February 24, 2020, through February 28, 2020
Shinaberry v. Saul (Traxler 2/26/2020): The Fourth Circuit applied a de novo review of an Administrative Law Judge’s determination that the petitioner was not entitled to Social Security disability benefits. Finding that the Administrative Law Judge applied the proper legal standards and that her findings were supported by substantial evidence, the Fourth Circuit affirmed. Full Opinion
Ortez-Cruz v. Barr (Diaz 2/26/2020): The Fourth Circuit granted in part, denied in part, and remanded with instructions the Appellant’s petition for review of her withholding of removal and Convention Against Torture (CAT) Claims. The Fourth Circuit found that, as to Ortez-Cruz’s withholding of removal claim, the government failed to meet its burden to establish that there had been a fundamental change of circumstances or that she could safely and reasonably relocate in her native country, and remanded the claim to the agency to grant the application. As to Ortez-Cruz’s CAT Claim, the Court found that she had not shown that if she was returned to Honduras she would be tortured with the consent or acquiescence of a public official and affirmed the agency’s decision to deny relief under the CAT. Full Opinion
Allegis Group, Inc. v. Jordan (Niemeyer 2/27/2020, Diaz Dissenting):
The Fourth Circuit affirmed the U.S. District Court for the District of Maryland’s holding that restrictive covenants in a corporate “Incentive Investment Plan” were not overbroad and were therefore enforceable.
Allegis Group is a Maryland corporation engaged in employment services across the country. Aerotek and TEKsystems were Allegis subsidiaries with specific industry focuses; Aerotek focused on staffing scientific, software, and engineering positions for its clients while TEKsystems concentrated in Information Technology and communications positions. Allegis and its subsidiaries worked closely and collaboratively with each other, often sharing proprietary information with each other and conducting joint training events. As part of its compensation program, Allegis offered certain of its employees and the employees of its subsidiaries an Incentive Plan that would allow them to continue to be compensated for up to thirty months after their termination or departure from Allegis. Receipt of payments under this program, however, was conditioned on the participant’s compliance with restrictive covenants contained within the plan; including non-solicitation and non-competition clauses. The plan further stated that if these conditions were breached during the thirty-month period the participant must return any amounts received under the plan.
Jordan, Curran, Nicholas, and Hadley, the defendants in this case, were all high-level Aerotek employees. Each signed an employment agreement with Aerotek that contained restrictive covenants. Additionally, each qualified for and elected to participate in the Incentive Plan offered by Aerotek’s parent corporation Allegis. When leaving employment with Aerotek, at least three of the defendants signed an acknowledgement that restated the benefits of, and conditions upon, the Incentive Plan.
During the immediate thirty-month period following his departure from Aerotek, Jordan incorporated two entities – Zachary Piper LLC and Piper Enterprise Solutions – to engage in the staffing industry. The Piper companies competed directly with Allegis, Aerotek, and TEKsystems for staffing positions in the Department of Defense and related industries. Jordan also contacted Curran and Hadley during this time period and began discussing the possibility of them working for him. After the end of Jordan’s thirty-month period he hired Curran, Hadley, and Nicholas to work for his Piper companies. During Jordan’s 30-month period he was paid over $1.4 million in Incentive Plan compensation. Curran and Nicholas, who both resigned from Aerotek to work for Jordan, received $17,702 and $6195 respectively before Allegis discovered the arrangement and ceased making Incentive Plan payments. Allegis was already aware of the situation by the time Hadley resigned to go work for Jordan and did not make any Incentive Plan payments to him.
Allegis, Aerotek, and TEKsystems brought suit alleging the defendants breached their obligations under the Incentive Plan and the restrictive covenants in their employment agreements. Plaintiffs sought return of all payments made under the Incentive Plan as well as compensatory damages. The District Court granted summary judgment to plaintiffs on their claims related to the Incentive Plan and ordered the defendants to return payments they had received, with interest.
On appeal to the Fourth Circuit, the defendants claimed that the restrictive covenants were not “reasonably tailored to protect legitimate business interests” as required under Maryland law. Because the relevant sections of the Incentive Plan imposed restraints not only on Aerotek, but on its parent Allegis and any of its subsidiaries, the defendants argued they are not related to a legitimate protectable business interests. Plaintiffs countered that not only where these provisions reasonable, but they are also distinguishable from restrictive covenants in employment contracts and should be treated as conditions precedent for obtaining payment.
The Court found that the plain language of the Incentive Plan text creates conditions precedent for payment, not a restrictive covenant. The Court further noted that under Maryland law such conditions must be strictly complied with to entitle the employee to payment. The Court went on to note that even if the reasonableness standard were applicable to the facts presented, it would still hold that the provisions of the Incentive Plan were enforceable against the defendants.
The Court next analyzed whether the defendants had breached the conditions of the Incentive Plan. Finding that Jordan had not set forth any facts suggesting a genuine dispute about the evidence that he had solicited Aerotek employees to work for his companies and solicited and obtained business from TEKsystems’ customers during the 30-month period following his separation, the Court affirmed the District Court’s holding that defendants had failed to fulfill the conditions for payment imposed in the Incentive Plan.
Lastly, the Court examined the District Court’s holding that rescission of the Incentive Plan and ordering the defendants to return any payments made under the plan was the appropriate remedy. Reiterating that the Incentive Plan created conditions precedent for payment, and that Maryland law requires strict compliance with such provisions, the Court found that the text of the agreement indicates an intent to create an “all or nothing” plan whereby participants were obligated to repay any compensation paid under the plan if they were found to violate its terms. As none of the defendants complied with the terms of the agreement, the Court held that Allegis was entitled to have the payments it made under the plan returned.
DIAZ – Dissenting:
Relying on Food Fair Stores, Inc. v. Greeley, 285 A.2d 632, 638 (Md. 1972), dissenting opinion would apply the same reasonableness analysis and increased scrutiny to the provisions of the Incentive Plan as to restrictive covenants in an employment contract. Under this analysis, the dissent would apply Maryland’s four-part test to determine whether the restrictive covenants are enforceable: whether the employer has a legally protected interest, whether the covenant is no wider in scope and duration than is reasonably necessary to protect the employer’s interest, whether the covenant imposes an undue hardship on the employee, and whether the covenant violates public policy. In the dissent’s opinion, the restrictions in the Incentive Plan plainly fail this test. The dissent does note, however, that notwithstanding the unenforceability of the Incentive Plan’s provisions, Allegis could seek recourse against the defendants for unjust enrichment or other claims. Full Opinion