Arizona Court Strikes Down Restrictive Covenants

In a notorious case, the Arizona Court of Appeals yesterday struck down Quicken Loans’ non-solicitation covenants and confirmed that the defendants in the case were entitled to recover their attorneys’ fees. Quicken sued seven of its former employees for breaching their non-solicitation covenants when they joined a competitor, loanDepot.  The non-solicitation covenants lasted for two years post-termination and prohibited ex-Quicken employees from communicating with current Quicken employees as well as Quicken employees in some forty other Quicken-owned companies that had nothing to do with residential mortgage loans.  loanDepot intervened in the case to invalidate the covenants and to protect its workforce.

The Court of Appeals held that the covenants were unenforceable as a matter of Arizona or Michigan law.  The two-year period was overbroad because it exceeded the time Quicken needed to protect its business interests or its confidential information and training program.  The restriction itself was overbroad because it prohibited communication with current employees on subjects far beyond proprietary customer or company information.  The Court went on to conclude that the ex-employees and loanDepot were both entitled to recover their attorneys’ fees spent defending the litigation.  The case is also interesting because its companion case before the NLRB made national news last year.

P.S. loanDepot was represented by none other than Sherman & Howard.