Good confidentiality and non-compete habits keep executives & companies out of court or prepared to win there 

Posted on May 27, 2025 by Joe Ahmad

Normally, I write about executives from the perspective of promoting their individual rights and liability.  But it is also important to keep in mind that executives have a fiduciary duty to the company and are trusted with protecting trade secrets and confidential information. That includes creating policies that help shore up the company’s position should it need to go to court.  

It is important for executives to regularly examine company policies to keep confidential information confidential. Most legitimate non-competes are designed to protect the company and its assets, especially trade secrets and confidential materials. Executives need to ensure that is the case. 

Executives should ensure that companies regularly audit their non-compete and confidentiality agreements. There are a variety of reasons for periodic audits:  

  • It is a must to ensure that all employees with access to confidential information have confidentiality agreements and that those in sensitive positions have reasonable non-compete agreements.  
  • The law changes, and non-compete agreements need to be updated accordingly  
  • An employee’s position or the company may change, and this may require a change in the non-compete language.

In updating the agreements, the following can provide a good checklist:   

  1. Make sure your non-compete is reasonable, given the employee’s responsibilities, access to confidential information and contacts with customers and other employees. In non-compete agreements, one size does not fit all.   
    Almost all states have a reasonability requirement, which means that a non-compete can be no broader in scope of activity, restrained, geography and time than is reasonably necessary to protect the company’s legitimate business interests.   
    Rarely do I see a non-compete written reasonably. Many states do not allow a non-compete to be modified, so they must be able to stand on their own. If the agreement is unreasonable as written, it will be struck down.   
    Even in those states that have a so-called “blue pencil” provision allowing a non-compete to be reformed, some courts can require a non-compete to be reformed before enforcing it.   
     
  2. Ensure that the non-compete obligations flow to all assignees and successors. Employees can move between subsidiary and affiliate corporations, and this can add protection if the non-compete is not updated every time the employee moves.    
     
  3. Protect all your confidential information with a confidentiality agreement and protect your most confidential information as trade secrets.    
    In general, a trade secret must have economic value and be subject to reasonable measures to keep it a secret.  The company should ensure that steps are taken to secure their most confidential information as trade secrets.    
     
  4. Move once an employee leaves for a competitor.  
    Delay often kills a non-compete case.
    If there is evidence that an employee took confidential material, that will greatly enhance any non-compete case because it demonstrates the need and urgency for an injunction.  
    It is important to have the employee’s computer sent immediately to review specialists, and certainly before another employee starts using it. Most non-compete cases are accompanied by a request for a restraining order and/or injunction. Such relief is an extraordinary remedy, granted only to protect against an imminent threat. Delay will indicate to the court that it can’t be that big a threat. 

I don’t advocate the indiscriminate use of non-compete agreements – those designed just to prevent competition. But when an executive finds it necessary to enforce a non-compete agreement to protect the company’s legitimate business interests, the executive must ensure that the company is in the right position to go to court.  

 

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Execs Can Be Fired for Off the Clock Speech or Behaviors 

Posted on March 18, 2025 by Joe Ahmad

C-Suite executives need to know that they represent the company even when they are off the clock. The recent jettisoning of Kroger’s chief for activities away from work is a sobering reminder. 

Personal conduct away from the office, even if it has no relationship to any co-worker or the finances of the company, may go against company policies and could be harmful to the business. 

The demise of executive Rodney McMullen was quick.  The Kroger grocery chain board learned of some “personal conduct” of his they called “inconsistent” with the company’s business ethics policy and immediately acted. 

Executives often are fired for lagging performance, failure to meet financial goals, misconduct at work or relating to employees and simply not delivering expected results. But your conduct off the job matters too. It does not have to be criminal or actionable for it to be stupid and offensive enough to alter your job status. The world is no longer compartmentalized. 

We live in a time when it is not just sexual misconduct that causes people’s employment to be in peril, but also inappropriate, racist, misogynistic and other potentially offensive comments made away from the work environment can reflect on the company and the employee. 

And a CEO will be held to a higher standard when it comes to what can tarnish their reputation or the company’s.  The Kroger CEO is not the first C-Suite inhabitant to be tossed like this. Law firm Boardman Clark discussed an exec with a podcast who made negative comments “about women, his anti-transgender opinions, and his opposition to diversity initiatives” on his podcast. He argued in a lawsuit that it was within his First Amendment right to do so. But non-governmental employees can be fired for what they say because aren’t protected by the First Amendment.   

As a company executive you may be off the clock, but you should not think any potentially offensive comments or behavior will stay off the record. As a C-Suite denizen, you are always representing your company.  

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Executive Safety May Hinge on Corporate Responsibility 

Posted on December 10, 2024 by Joe Ahmad

CEOs of major corporations are accustomed to high stress, high pressure and public-facing roles that can be dangerous to their mental health. But the shocking shooting death of UnitedHealthcare CEO Brian Thompson is a sobering reminder that on rare occasions, the position can be dangerous to their life as well.  
 
While CEOs and other C-suite executives accept that they are subject to intense scrutiny and criticism and can lose their job due to circumstances outside their control, few expected CEOs to be risking their physical safety. But increased threats and social media vitriol has made this a frightening reality, especially for those whose businesses are unpopular or seen in a negative light by some. A Forbes story recently noted “CEOs often face threats from disgruntled employees, unstable individuals, or those vehemently opposed to their stances.”   

 So, what can companies do to protect their CEOs?   
 
The immediate reaction by some is to consider increased security and removing the CEO’s bios and photos from the websites.  But I suspect this will have only a limited effect. It may help for a privately held business. But if a publicly traded company’s CEO is targeted, there are numerous places where someone can find their name, likeness and more. More thorough physical and digital safety precautions may be required, in some cases for the CEO’s families as well as for the CEO. 

There needs to be some consideration for the company’s effect on others. Companies with power over people’s lives must balance shareholder value with the effect their actions have on the well-being of the public. In the end, a company’s actions taken for the benefit of others also protects the company image which in turn increases shareholder value.

We likely will not go as far as Emory University School of Law professor George Shepherd argues in the law review article Not Just Profits: The Duty of Corporate Leaders to the Public, Not Just Shareholders. He says that the public good should again become a major acknowledged and required goal of corporations. “In exchange for receiving limited liability, corporations, and their officers and directors, should be required to serve the public purpose. This change would be efficient and would protect non-shareholder stakeholders, such as workers and the surrounding community, from inevitable vulnerability to corporate decisions.” 

Ultimately, publicly traded companies should be interested in their long-term image.  And while it is easy to get caught up in the quarter-to-quarter bottom line mentality, there can be negative consequences to this for shareholders and the rest of the community. These improvements in considerations and thus in image can hopefully serve as protection for executives as well. 

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Non-compete breach in business contract nets client $25.6M 

Posted on September 4, 2024 by Joe Ahmad

My colleagues at AZA and I won a $25.6 million breach of contract jury verdict in Houston court this week in a non-compete case pitting AZA client doctors’ group Fondren Orthopedic Ltd. against healthcare giant HCA Healthcare.  

While the Federal Trade Commission’s ban on non-competes for employees is headed to appellate courts after being overturned in two trial courts and upheld in one other, here a non-compete in a business contract was honored by a jury granting our client all requested damages.  

Fondren and HCA (which took over for Columbia Hospital Corporation) were in a limited partnership that owns and operates Texas Orthopedic Hospital, a hospital specializing in orthopedic surgery services. The jury found that HCA had broken the non-compete provisions of the contract by opening 10 competing hospitals in the Houston area. In addition, HCA prevented the Fondren group doctors from doing the same by invoking the same non-compete provisions the larger entity was blatantly breaking.  

HCA had the size, the scale and the power and felt they could do what they wanted. The hospital contract with Fondren was for 57 years, and about halfway through, they just decided they would no longer honor the contract. HCA owned 60% of the hospital with Fondren, but 100 percent of their improperly opened competing hospitals and sent business to their fully owned places. 

The case was covered by Texas Lawbook in “Houston Jury Finds HCA Hlethcare Owes Doctors $25.6M” (subscription required).  

The AZA team included my partner Kelsi Stayart White, associates Paul Turkevich and Karina Sanchez-Peralta, of counsel Kyle Poelker and Hilary Greene. HCA was represented by a team from Latham Watkins, including former Enron lead prosecutor Sean Berkowitz.  

Judge Jeralynn Manor oversaw the three-week trial and will hold a separate bench trial to determine attorney’s fees.  The case is Fondren Orthopedic Ltd vs. Columbia Hospital Corporation, Harris County case number 2021-68404. 

 

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Northern District of Texas temporarily enjoins FTC from enforcing its non-compete ban

Posted on July 4, 2024 by Joe Ahmad

It’s not surprising that a federal court enjoined the Federal Trade Commission’s (FTC) non-compete ban. Many non-compete lawyers, including me, predicted that the FTC ban on worker non-compete agreements would be struck down.  And the first court to rule on the issue, albeit, in a preliminary ruling, indicated that it will likely rule that the FTC’s ban is invalid.

Northern District of Texas Judge Ada Brown granted a preliminary injunction preventing the rule from taking effect in September, ruling that the FTC “exceeded its statutory authority in promulgating the noncompete rule, and thus plaintiffs are likely to succeed on the merits” of their request to strike down the ban. 

It appears that at least one court is poised to pull down the ban. And, given the U.S. Supreme Court’s late June decision courts are now instructed to interpret statutes using their own independent t judgment without deference to an agency’s interpretation. The high court overruled its previous policy of deferring to reasonable agency determinations under Chevron v. Natural Resources Defense Council.  It now seems inevitable that Judge Brown’s anticipated striking down the ban will be upheld by 5th U.S. Circuit Court of Appeals, and the U.S. Supreme Court, if it gets that far. While Judge Brown limited her injunction to the parties in front of her, other courts will likely do the same or even apply their order nationwide.

As a practical matter, employees and business should and will consider FTC’s ban void, unless something surprising happens.

One significant cautionary note – this only applies to federal efforts to limit non-competes. It has no effect on the continuing trend at the state legislative level to reign in non-competes. Considering what appears to be stalled efforts at the federal level to limit non-competes, pressure on state legislators to act will only increase. I doubt my state, Texas, however, will take any such action soon. Outside of Texas, lawyers should still stay tuned.

 

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Whistleblower client helps government settle $15 million Baylor heart surgery Medicare fraud case 

Posted on July 2, 2024 by Joe Ahmad

Working in concert with the federal government for five years, my law firm colleagues and I saw our whistleblower client receive $3 million of the $15 million settlement of a lawsuit alleging that Houston surgeons were letting unqualified trainees perform parts of heart surgeries while the surgeons billed for two or three concurrent surgeries.

The government said it is the largest settlement on record for Medicare fraud over concurrent surgery claims. The settlement is with Baylor St. Luke’s Medical Center, Baylor College of Medicine and Surgical Associates of Texas P.A.

This case is a good example of what qui tam claims under the False Claims Act can do. The allegations in this case became public and got a lot of publicity when the government intervened and settled. It puts people on notice around the country that this type of behavior will risk the wrath of the government.

 “In short, the teaching physicians churned through as many cardiac surgeries as possible to generate revenue for Baylor, regulations be damned, and were rewarded with lavish compensation,” said the lawsuit filed by my firm AZA.

The press release from the U.S. Southern District of Texas’ U.S. Attorney’s Office is here Texas medical center institutions agree to pay $15M record settlement involving concurrent billing claims for critical surgeries.

The False Claims Act was enacted after the Civil War to address military contract fraud. These days it is health care and still some department of defense fraud that dominate use of the act in lawsuits filed by whistleblowers.

This case took five years from when we filed it in 2019, which is not uncommon when the government intervenes and does its own thorough due diligence. The government tends to get involved in cases it deems both important and likely to lead to end in a win for the government. Otherwise, the whistleblower who filed the lawsuit must proceed on their own, even though the government would still take the biggest chunk of any judgment.

In this case, Medicare billing regulations require that a teaching physician must be in the operating room and supervising operations during critical portions of surgeries. Regulations also require adequate informed consent from patients. The lawsuit alleges that procedures were done in violation of these regulations, resulting in a $150 million windfall for the hospital and allowed the surgeons to make compensation up to four times what their colleagues made.

These Medicare regulations are there to protect the integrity of the government program and to protect patients. Patients have a right to a surgeon’s undivided attention, especially in a procedure as important and complicated as heart surgery. We took this case when we saw it concerned not only double and triple billing to Medicare but also something as serious as heart surgeries. The surgeries in question included coronary artery bypass grafts, valve repairs and aortic repair procedures.

The case is in federal court in Houston titled Morgan et al. v. Baylor St. Luke’s Medical Center et al. case number 4:19-cv-02925.    

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Tech entrepreneur Mike Lynch acquitted of defrauding HP; he was smart to testify 

Posted on June 11, 2024 by Joe Ahmad

A San Francisco jury that heard three months of testimony unanimously acquitted Autonomy CEO Mike Lynch of 15 criminal charges of conspiracy and wire fraud over the 2011 sale of his company to Hewlett-Packard. The government charged that Lynch misrepresented the value of his company at $11 billion and HP had to write down the value of the company by more than half. 

This sale, a major British tech deals at the time, was supposed to give a jump start to HP’s software business but it did not. HP won a civil case against Lynch in London, but damages have not been set. This U.S. case was a criminal one brought by the U.S. Justice Department. 

Lynch, a software entrepreneur who has both been praised for his ingenuity and criticized for this sale, told jurors himself that he did not lie to HP but depended in good faith on the calculations of others. He spent three days on the stand and clearly made a positive impression.  

In a battle between a rich founder executive and a sophisticated larger company, where the larger company bought the founder’s company, people will assume that the larger company is responsible for doing its due diligence. They will likely assume the company executives should know better than to rely purely on representations of the other side’s management.  

Some jurors tend to believe that these companies and executives operate in infested waters and should know it is ‘buyer beware.’ And the theme that HP and Whitman would blame others for their own mismanagement or failures is easy for some jurors to believe. 

Finally, some on the jury may have expected former HP CEO Meg Whitman to testify, and when she didn’t, that may have raised some suspicion and doubt in their minds. Whitman, a one-time California gubernatorial candidate, was running the company when it took the massive write down for the Autonomy purchase and she led some of the accusations against Lynch. 

And the fact that Lynch did testify and that he, over days, played guide and teacher to the jury about British phrases may have endeared him to the jurors. Given all that, it wasn’t a surprising outcome. 

I was quoted about this case in several trade publications including CIO.com and Accounting WEB. 

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Boeing CEO resigns – the top must drop in crises like these 

Posted on March 29, 2024 by Joe Ahmad

Davd Calhoun, CEO of Boeing, announced he is resigning from the troubled airlines at the end of the year. This is inevitable and the right thing to do.

Just like in pro sports, an organization with major problems needs to defend itself and do so with a change at the top. Customers, workers and the market need to know solutions are coming.

Just like the New England Patriots jettisoned even the mostly revered Bill Belichick, Boeing needed a change. The Wall Street Journal reported in Boeing CEO Dave Calhoun to Step Down in Wake of 737 MAX Struggles that not only will Calhoun be gone but his exit is “part of a broader executive shake-up after a Jan. 5 midair blowout and sweeping production problemsthat have angered airlines and regulators.”

Calhoun came on in 2020 after fatal crashes the two years before he joined. But the Alaka Air door plug falling out midair and other recent problems have proved too much.

CNBC featured a story on who might replace Calhoun, looking to GE, Carrier, Spirit, and an executive inside Boeing. Ideally, they need someone from outside to come in with fresh eyes. They should be looking in manufacturing and airline industries. Folks already inside the company tend to be defensive.

This search goes to the need all companies have for a succession plan. Given that Calhoun is looking to leave in nine months, one can assume there was no such solid succession plan in place at Boeing. A succession plan is not a luxury, it is a necessity for companies that can face a crisis in which the top executives are immediately unavailable to continue service.

Where Boeing stands now, it needs to do three things. One, find experienced and fresh eyes to run the company. Two, the folks at the top must show all employees that they are taking this seriously and seeking to strengthen and fix things at Boeing. Three, show the market that the company is up for the reset it needs.

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Paxton and Succession – What if you are the coup target?

Posted on September 25, 2023 by Joe Ahmad

Though politics, in the more formal political party sense of the word, had a leading role in the impeachment trial of Texas Attorney General Ken Paxton, there were definite similarities between that attempted takeover and what happens in the hit HBO show Succession and in boardrooms across America.  

As with the characters in the show, people are always maneuvering to get into the C suite. And once there, they often aspire to being CEO or chair of the board. Many times, that involves dethroning an existing CEO or board chair. And two things that mattered in both the attempts to unseat Paxton and in the show Succession are politics and the rules of engagement. 

Both party politics and workplace politics can matter a lot. Inevitably, you must win over the decision makers who will vote on your future. Unless your dad hands you the keys to the company like Rupert Murdoch just did, it is not good enough just to have good performance. It usually must be a demonstratively great performance. More importantly, it must be shown to benefit those who decide your future.  

In Succession, workplace politics and family politics were the backbone of all four seasons as Logan Roy’s children jockeyed for their won exalted spot at the table. In the Paxton case, politics in front of the public, and more importantly behind the scenes, played dual roles. In C-suites, it can be just as cutthroat as on HBO or in Austin.  

The other key issue is the rules of engagement. Frequently the rules are found in company bylaws or employment contracts. Unfortunately, with respect to employment agreements, very few people study them with an eye towards their own future and rise in the company. If you do not have a lot of leverage from your employment agreement, or company bylaws, you are too easy at target for people to remove rather than promote if they think they will benefit personally.  

The rules in Succession were on paper but they were bent and mangled and eventually cleverly superseded in the show. The rules of engagement for Paxton were clear but what went on between Senators was where the real decisions were made.  

The rules of engagement in the C suite need to be as specific, unambiguous and non-discretionary as possible. If discretion is allowed as an element of the decision to terminate someone, an ability to cure is essential. Written notice of the details of the cause for termination and an opportunity and ability to cure it are key.  

Requiring a vote of a board or others as opposed to investing discretion with a single person is important as well. It is easier for someone opposed to you to plan your overthrow if only a few have to okay it, rather than a larger group.  

Change of control agreements can be extremely helpful as well. Often the people that gang up on you are people you do not know well or at all. You may have a great relationship with your existing board. But what happens when new owners and a new board take control? Inevitably the existing management will be partially if not completely removed. It is smart to have a payment agreement in place if there is a change of control over your report, responsibilities, pay or location. And of course, the payout should be as significant as possible. The higher the cost, obviously the less likely an improper removal will gain traction.  

  

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FTC Non-Compete Rule Change Could Boost Wages and Innovation

Posted on May 9, 2023 by Joe Ahmad

In April, the Federal Trade Commission (FTC) closed comments on a proposed rule change that would drastically limit employers’ uses and abuses of non-compete agreements in employee contracts. 

When the FTC announced the proposed rule change its press release suggested exploitation will go down and wages will go up if the change goes through: 

The Federal Trade Commission proposed a new rule that would ban employers from imposing noncompetes on their workers, a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans. 

It is no surprise that labor and consumers have overwhelmingly favored the changes and business interests have opposed them. In a story on the divide NBC News noted that what it called “lobbying crossfire” by the dueling interest groups was “in addition to the more than 26,000 comments from the public the FTC gathered over the past several months.” 

This showdown in Washington was inspired by business’ expansion of the uses of non-competes over the last few years that many would argue has been an over- use or abuse. The original purpose of a non-compete was to protect legitimate business interests like the privacy of confidential business information and trade secrets. But some businesses have used non-competes as handcuffs to prevent even lower-level employees from leaving.  

A non-compete can unfairly lock someone into a job though there is no real threat to the business if they leave. The businesses have lawyers to enforce their claims but it is a small percentage of employees who have the finances to access lawyers for an expensive legal fight over the non-compete. 

Another concern is that many studies show the most innovative businesses created by executive types come from those who worked at other companies and saw a new, potentially better way to do things. In this way non-competes can stifle competition and innovation.  

In a New York Times op-ed, Lina Khan makes the argument that in addition to suppressing wages, non-competes suppress creativity in the marketplace: 

Start-ups are historically a key driver of job creation and innovation but several studies have found that noncompetes reduce entrepreneurship and start-up formation. How can a new business break into the market if all of the qualified workers are locked in? Or if the would-be founder is bound by a noncompete? 

I expect the FTC will carefully consider the concerns of businesses as it addresses the rule change. But it will balance that with the data showing the suppression of wages and the costs to innovation non-competes have created.  

 

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