Monday, December 27, 2010

Wal-Mart/CVS Dispute Over Mullany Illustrates Problems of Hiring the "Senior Big Dog"

The Delaware Non-Compete Law Blog has a couple of excellent posts on the recent decision by Judge Travis Laster enjoining CVS Caremark from hiring Hank Mullany, a former senior executive with Wal-Mart Stores, Inc.

At the time of his departure, Mullany was the Executive Vice-President and President of Wal-Mart North, a position that reported directly to Wal-Mart's CEO. Mullany oversaw store operations, real estate and supply chain functions for 19 states, stretching from Illinois all the way to eastern seaboard states from Maine to North Carolina.

Mullany gave notice of his resignation in October, about 10 months after his promotion to President of Wal-Mart North. Wal-Mart later found out that CVS intended to hire Mullany. According to Wal-Mart's Complaint, CVS and Wal-Mart compete in the retail pharmacy market and other associated markets, such as beauty aids, consumables and groceries. Mullany's non-compete agreement with Wal-Mart prohibited him from working with any general or specialty retail store with a gross revenue threshold of $5 billion.

Vice-Chancellor Laster found that, in signing the non-compete agreement, Mullany knew exactly what he was signing and that the covenant appeared reasonable under Delaware law. It is true that one does not necessarily think of CVS and Wal-Mart as direct competitors, but in the retail space, with whom wouldn't Wal-Mart compete at least in some respect?

In his decision, Vice-Chancellor Laster specifically noted that if non-compete agreements should apply to anyone it is to "senior big dog executives." Though it is relatively uncommon for a state's non-compete test to hone in on the position or pay grade of the employee, it is not a stretch by any means to think that courts consider an employee's level of sophistication and business acumen to be a significant factor when determining to what extent the covenant should be enforced.

This relates, most often, to the protectable interest of "confidential information." Wal-Mart's Complaint was replete with references to the types of information and business strategies Mullany was able to access while at Wal-Mart. Those allegations portrayed a convincing story of how Mullany could use that information to run CVS' operations and take on Wal-Mart directly, particular in the pharmacy and prescription drug market. In competitive transitions like the one Mullany sought to make, a non-disclosure agreement is of limited use because compliance is hard to monitor. It is much easier to determine whether an executive employee is working for a competitor, and nearly impossible for outsiders to determine exactly what information he or she is using to perform day-to-day duties.

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