Will Mullany's noncompete agreement undo CVS' succession plan?
WHAT IT MEANS AND WHY IT'S IMPORTANT — CVS Caremark made headlines when it announced late in the day on Dec. 3 that former Walmart executive Hank Mullany had been named president of CVS/pharmacy. However, the wires were soon abuzz with news that Walmart had filed a lawsuit against CVS to block the hiring of Mullany.
(THE NEWS: CVS/pharmacy moves ahead with succession plan, Hank Mullany named president. For the full story, click here)
In the lawsuit, Walmart alleged that Mullany's contract forbids him from working for a company that competes with Walmart. A judge has issued a temporary restraining order barring Mullany from joining CVS until a preliminary injunction hearing is completed. That hearing currently is scheduled for Dec. 15.
In the filing, Walmart said that before Mullany accepted that position, he signed a contract in which he agreed that if he left the company, he would not join or be involved with a company that competes with Walmart for at least two years, the Associated Press reported. Walmart said Mullany has detailed knowledge about Walmart and its strategies, and it would be harmful to the company if he shares that information with CVS.
According to the Associated Press, CVS said it was disappointed with the decision and believes the allegations are without merit. CVS also stated that it tried to resolve the situation with Walmart before announcing Mullany's hiring.
As EVP and president of Walmart North, Mullany ran a huge chunk of the retail giant with responsibility for the operation of 1,300 stores across 19 states.
The suit does bring several points into question, such as: Is a two-year clause too long? Should employees sign a noncompete agreement?
In fact, a recent discussion on Retailwire brought up these questions, among others.
"I am always amazed at the employment contracts that some people sign! It can be exhilarating joining a new organization but be careful with what you sign. I do find the two-year clause too long. The industry norm is one year and that's what should have been in the contract. BUT ... a contract is a contract. If you sign it, you should live by its terms. Contracts exist to protect both parties," one person wrote on Retailwire.
Meanwhile, another person wrote: "It is tough to prevent someone from earning a living. With consolidation in the CPG industry (as with other industries) it is hard to leave a company and find a new place to work that does not overlap your old employer. Where could Mr. Mullany go to work if Walmart was not a strong fit for him and earn at least the same amount? If Walmart wants to prevent Mr. Mullany from working at a competitor for two years then they need to pay him to sit on the sidelines for those two years. Even then, it is tough to side with Walmart since Mr. Mullany would be less desirable after two years on the sidelines ..."
While the courts decide if Mullany's noncompete contract holds water, tell DSN what you think — e-mail email@example.com.