Non-compete prevents CVS from hiring former Wal-Mart VP

Most are familiar with Wal-Mart’s success as a company, and its uncanny ability to drive smaller competing businesses into the ground. But people are not necessarily aware of the legal battles Wal-Mart engages in to protect its marketing strategy.

On December 15th, Wal-Mart won a court order preventing CVS Caremark Corp. from hiring the man who formerly served as Wal-Mart’s executive vice president. Wal-Mart claims that its former VP is bound by a non-compete agreement.

Wal-Mart hired its former executive VP in 2006 and formed a non-compete agreement with him in 2009 upon appointing him president of Northern U.S. division of Wal-Mart. The agreement prevents the former VP from working for competitors retailing more than $5 billion in revenue for two years after leaving Wal-Mart.

The agreement was reportedly made to prevent the former VP from disseminating confidential information concerning Wal-Mart’s pilot program involving small-format markets. The former VP had been the executive sponsor of Wal-Mart’s small-format plan, and had oversight of 1,312 stores in 19 states during his time with the company.

In a hearing concerning the contract dispute, CVS argued that Wal-Mart brought the former VP on because of his expertise in management rather than for his knowledge about Wal-Mart growth strategy, and that any knowledge he may have is outdated. But the judge ruled that the non-compete agreement was reasonable. Wal-Mart’s request was granted as a preliminary injunction, which will prevent CVS from making the hire until the issue is tried in early March.

In the area of pharmacy retail, Wal-Mart has established itself as a competitor with companies like CVS, Walgreens, and Supervalu. The company currently has over 4,000 pharmacies.

Wal-Mart announced its plans last October to open 30 to 40 small-format markets in 2012. Its small-format strategy will place it in direct competition with companies CVS.

Source: Bloomberg, “CVS Can’t Hire Ex-Wal-Mart Vice President, Judge Says,” Sophia Pearson; Phil Milford, 15 Dec 2010.

Contact Alan Lescht and Associates today if you need legal advice about a non-compete agreement. We can review your contract and try to negotiate more favorable terms for you.