If the Federal Trade Commission has its way, litigation fights like the one between IQVIA, Inc. and Circuit Clinical Solutions, Inc. over the job switch of executive Dana Edwards will soon be a distant legal memory. In IQVIA, Inc. v. Cir. Clinical Sols., Inc., 2023 NCBC 1, the Business Court weighed a motion to dismiss claims by IQVIA that Circuit Clinical induced Edwards to breach noncompete and nondisclosure covenants.
The FTC says use of noncompetes “suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The agency believes that a proposed rule it issued on January 5 that would ban noncompetes could hike wages by $300 billion a year and enhance career prospects for 30 million American workers. Public comments on the proposed rule are expected in bulk, as are litigation challenges to its final implementation. Our Labor & Employment folks discussed the FTC proposal here.
Edwards worked for IQVIA for almost a decade, ultimately reaching VP for global sales of clinical technology, but disclosed her plans to leave in mid-2021. Judge Conrad notes that the move “alarmed” her employer, which unsuccessfully “tried to retain” Edwards, and ultimately objected to her new role with its competitor as a violation of her covenants. Id., ¶¶ 3, 5. She still joined Circuit Clinical, and litigation ensued, but FTC chair Lina M. Khan believes the proposed rule would honor a “core to economic liberty” for employees like Edwards:
“Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”
But under existing noncompete law, IQVIA is still very much in the game in efforts to enforce its covenants with Edwards. The motion to dismiss turned in part on an area of law that will be around long after the dust settles on the viability of noncompetes: choice of law. The contract between IQVIA and Edwards specified Delaware law, but Circuit Clinical argued the agreement should fall because it lacked consideration under governing North Carolina law. Circuit Clinical offered a document in motions practice that purported to undercut the consideration granted to Edwards, but Judge Conrad, in denying the motion to dismiss, noted evidence outside the pleadings was outside the motion’s scope (¶ 13):
“These arguments stray well beyond the limited scope of a motion to dismiss. They are, in form and substance, evidence-based arguments better suited to summary judgment.”
The Court also forecast tough work ahead for Circuit Clinical to demonstrate that the “choice of law” clause should be set aside so that the company could even get to its argument that the employment contract would fail under North Carolina law. Under North Carolina law, the Delaware selection can only be set aside (i) where that state “has no substantial relationship to the parties or the transactions and there is no reasonable basis for the parties’ choice”; or (ii) where Delaware law “would be contrary to a fundamental policy of a state which has a materially greater interest” in the resolution and that law would have applied if the parties had not entered a “choice of law” clause. Id. ¶ 15 (quoting Cable Tel. Servs., Inc. v. Overland Contracting, Inc., 154 N.C. App. 639, 642-43 (2002).
The Court noted that it “would be error to assume” that North Carolina’s interests outweighed Delaware’s in this setting, or that North Carolina law would have applied in absence of an election by the parties. Id. ¶¶ 17-18. With discovery awaiting such issues, Judge Conrad ruled that “it is prudent to shelve” consideration of whether Delaware law would be contrary to a “fundamental policy” of North Carolina law. But he cautioned that North Carolina courts “have been reluctant” to make that finding, instead reserving it for cases “involving prohibited marriages, wagers, lotteries, racing, gaming, and the sale of liquor.” Id. ¶ 19 (quoting Boudreau v. Baughman, 322 N.C. 331, 342 (1988).
- The FTC’s proposal to ban noncompete agreements would generally not impact nondisclosure agreements of the type IQVIA and Edwards also reached. However it would commend scrutiny to other restrictions on employment “if they are so broad in scope that they function as noncompetes.”
Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.