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Railroad Worker Challenges ‘Overbroad’ Non-Compete Agreement

June 20, 2019, 10:17 AM

Tracy Miller left Canadian National Railway after he felt he no longer had an opportunity to move up at the company where he had worked for 24 years. A competitor offered him the very promotion he said he was denied five times.

Canadian National, however, allegedly pushed to enforce a non-compete agreement against Miller that included stripping him of roughly $900,000 in equity shares. Miller then felt compelled to turn down the new job, according to court documents.

Miller is now taking on the company in two ongoing lawsuits. In one case before a federal court in Memphis, Tenn., he argues that the company discriminated against him as a black employee by giving white employees with less experience promotions he deserved. In addition, he said the company unequally enforced the broad agreement that prevented him from taking a new job.

Another lawsuit in an Illinois state court goes after the contract itself, which provides an example of a challenge to a sweeping non-compete agreement that’s meant to protect company secrets and intellectual property, but could in effect go much further.

Employers rely on the use of such agreements to protect company information from unfair competition by former employees and competitors. The idea is that an employee could bring a past employer’s confidential information to a competitor.

“The major difference between Tracy and other employees in similar situations is that he is black and raised concerns that considerations are made based on race,” Joe Leniski with Stranch & Jenning said. “This is an abusive situation. I think it sends a signal about these agreements and how they can perpetuate wrongs beyond what the notion of a non-compete is,” said Leniski, who represents Miller in the federal case.

A state judge in Illinois on June 13 allowed the challenge of the agreement to stay in his court, at the same time the racial discrimination case proceeds in federal court in Tennessee. Canadian National had asked the judge to consolidate the challenges in federal court. The judge set a hearing for September 24 to decide whether the non-compete was enforceable and whether or not Miller should be subject to its terms.

“He finally was going to get the job he felt he so long deserved, but the agreement he signed prevented him from taking it,” said Vedder Price’s Bruce Alper, who represents Miller in the Illinois dispute. “That contract is overbroad and unreasonable. State courts generally frown upon the agreements because they prevent people from working in their chosen occupation.”

In response to Miller’s employment discrimination claim, the company, represented by attorneys with Littler Mendelson, filed counterclaims seeking to enforce the non-compete and alleging breach of contract, fraudulent misrepresentation, and unjust enrichment stemming from the violation of the non-compete. The attorneys and a company representative declined to comment.

The Montreal-based company offered Miller a new role before he left, but he claims that was a lateral move and not the promotion he deserved. The non-compete agreement, issued in 2009 according to attorneys, required Miller to not work for a competitor in the railway industry for two years after leaving Canadian National, according to court documents. Throughout his career, Miller worked for Canadian National in several states, including Kentucky, Mississippi, Illinois, and Tennessee.

Non-Competes Face State Scrutiny

It was important for Miller’s attorneys to keep his cases separate, as the state laws surrounding non-competes vary.

Lawmakers and courts have increasingly been limiting the power of such contracts. Several states, such as California, Montana, North Dakota, and Oklahoma, ban non-compete agreements for employees and prohibit all non-compete agreements except in limited circumstances.

Other states have proposed legislation in recent years that similarly would limit or ban non-compete agreements, including Massachusetts, Idaho, and New Jersey. A federal bill also was introduced in 2018. It would have banned any company engaged in interstate commerce from forcing an employee to sign a covenant not to compete.

“There are times when restrictive covenants have a legitimate purpose and are enforced,” Alper said. “In Tracy’s case, he was in the operations department his entire career. He made sure the trains run on time and on schedule. There is no access to secret information.”

“It just seems inherently unfair for an organization to prevent someone from taking a job that he was denied,” he added.

There are a few recent examples of companies and courts taking a closer look at contract provisions.

Google recently stopped enforcing a contract provision that banned former employees from trying to hire away their ex-colleagues a year after leaving the company. The company cited the new policy in a court filing that came in response to a lawsuit challenging the company’s employment agreements and practices.

In another recent case, a Kansas federal court said Edelman Financial Engines can’t proceed with its lawsuit against two former employees who allegedly violated non-compete clauses. The attorney for the workers in that case said it followed a string of similar rulings in other states.

In another recent case in New Jersey, a judge ruled that a payroll company didn’t violate the state’s antitrust laws by conditioning some stock options on non-compete agreements, but the court is poised to decide if some of their terms were overbroad. The U.S. Court of Appeals for the Third Circuit upheld the agreements on principle, but it acknowledged that the agreements may be more restrictive than necessary.

Race Central to Dispute

Miller claims that his failure to rise in the ranks at Canadian National was because of his race. Both lawsuits document several white managers being selected for vice president of operations, the next step after Miller’s role in the chain of command.

His attorneys also cite incidents in which former workers left for competitors and the non-compete agreement wasn’t enforced. He sought the promotion five times in 12 years and was passed over each time, the lawsuits allege.

He was offered the job as vice president of operations at Canadian Pacific Railroad, a competitor of Canadian National. It was the title he had sought for 12 years. After he was threatened with a lawsuit, he didn’t take the job. The lawsuit in Illinois argues that the non-compete agreement was too broad and that the company couldn’t demonstrate that his employment with a competitor would compromise their interests.

The discrimination case is Miller v. Canadian Nat’l R.R. Co., W.D. Tenn., No. 2:19-cv-02152, second amended complaint filed 5/30/19. The state court case is Tracy Miller v. Canadian National Railway Company, C.C.D. Ill., No. 2019-CH-03259, complaint filed 3/12/19.

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Cynthia Harasty at charasty@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com