1. Target Hires Key Executive Away from Amazon
A retailer’s supply chain includes the vendors that supply products, warehouses that store the product, distribution centers that deliver product to the retailers, and retailers who offer the product to the ultimate purchaser. An effective supply chain is crucial to any business and can result in lower costs, improved profitability, and greater customer satisfaction and loyalty.
Although Target continues to be a powerful player in the U.S. retail market, it has had an ongoing problem with out-of-stock product. Experts say a major cause of this problem is that Target’s supply chain was designed for brick-and-mortar store operations and isn’t able to handle the additional demand and complexities of online orders. CEO Brian Cornell has recognized this as a critical problem for the retailer, noting that “Target’s growth hinges on our ability to enhance the fundamental aspects of our business, starting with the supply chain.”
So when Target recently decided to upgrade its supply chain, it went after a seasoned executive—Arthur Valdez, a high-level employee at rival Amazon. During a 16-year career at the world’s largest online retailer, Valdez had been promoted through a variety of supply chain positions of increasing responsibility. He eventually became vice president of operations, charged with expanding Amazon’s international supply chain.
Valdez was offered the position of executive vice president of supply chain and logistics at Target, reporting to Chief Operating Officer John Mulligan. In a statement announcing Valdez’s hire, Mulligan noted that “Arthur’s leadership and experience will be a tremendous asset as we continue to drive improvements in end-to-end processes, including leveraging our almost 1,800 stores to deliver a seamless experience for our guests.”
In the retail industry, however, as in many other industries, employers frequently file lawsuits over noncompete clauses as part of a strategy to protect trade secrets from walking out the door. And following Target’s announcement, Amazon filed a lawsuit in Washington state court to keep Valdez from starting his new job with Target. The lawsuit also serves as both a delay tactic and a warning to other employees and rival employers.
Amazon pointed out that a noncompete agreement signed by Valdez prohibited him from working for any direct rival for 18 months following the end of his employment with Amazon. In addition, Amazon claimed that Valdez shared confidential information with Target about how Amazon handles orders and logistics during the peak holiday season. “Mr. Valdez cannot lead Target’s supply chain operations without referencing confidential information learned and developed by him at Amazon,” the company said in its suit. Amazon also asked the court to make Valdez pay its legal fees. Amazon’s complaint explained that “Mr. Valdez knows, created, and implemented Amazon’s most confidential strategies and metrics, including competitive analysis of Target and other similar competitors, in Amazon’s supply chain and logistics operations.” The complaint further explained that Valdez “developed intimate knowledge of the proprietary metrics and analytics” used by Amazon in its supply chain operations.
In response to the Amazon lawsuit, Target asserted that Valdez had not violated any agreement, and according to a Target spokeswoman, the retailer took “significant precautions to ensure that any proprietary information remains confidential.” Target declared that Amazon’s suit was without merit.
States vary in the degree to which they will enforce noncompete agreements. In the state of Washington, the courts use a three-factor test to determine if a noncompete agreement is reasonable. The courts consider (1) whether restraint is necessary for the protection of the business or good will of the employer, (2) whether the noncompete agreement imposes upon the employee any greater restraint than is reasonably necessary to secure the business of the employer or the good will thereof, and (3) whether the degree of injury to the public due to the loss of the service and skill of the employee warrants nonenforcement.
Rather than resort to a protracted court battle, Amazon opted to settle with Valdez, under the terms of a confidential agreement.
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