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When a top executive resigns without explanation, rumors begin to fly at most companies.
But in the weeks following Marcus Lanznar’s resignation from Hartford-based healthcare technology firm CareCentrix, the water-cooler rumors took on a particularly urgent tone. Lanznar, formerly associate vice president at CareCentrix for new strategies and products, had gone to work for what the company considered a direct competitor, Signify Health, which has its principal executive office in Norwalk.
Lanznar left CareCentrix on Nov. 6, 2020, declining to detail his future plans to his bosses. CareCentrix filed a lawsuit a month later, in the federal district court in Delaware, alleging the former VP violated numerous non-compete agreements and shared confidential trade secrets with a competitor.
“CareCentrix has recently discovered that Lanznar transmitted trade secret and confidential information to his personal email account in the months prior to his separation from the company,” the complaint alleges. “The commercial dangers and injury are quite stark. … [Lanznar] had access and knowledge of virtually every piece of sensitive product information at CareCentrix.”
Signify Health said it disputes the lawsuit’s claims and intends to “vigorously defend against” it, but wouldn’t comment further.
Many companies quickly settle complaints like CareCentrix’s lawsuit, but litigation was ongoing as of press time. The next hearing on a preliminary injunction in the case is scheduled for July 28.
In addition to the strong language and blunt allegations of wrongdoing, the lawsuit is notable in that it shines a light on the fast-growing healthtech sector. With more startups forming and moving toward IPOs, the competition for talent is hotter than ever.
CareCentrix uses data analytics to help patients determine the best site for post-acute care, among other care coordination services it provides. Operating out of the Stilts Building at 20 Church St., CareCentrix made news in recent years for acquiring a palliative care company and applying machine learning and artificial intelligence to optimize post-acute care.
In 2016, CareCentrix reached a record $1.4 billion in revenue, the Hartford Business Journal reported at the time. It was also a recipient of state funding under former Gov. Dannel P. Malloy’s First Five economic incentives program.
The privately-held company is led by CEO John Driscoll.
Signify offers a value-based care platform that employs advanced analytics, technology and a nationwide provider network to create and support payment programs that aim to move hospitals and doctor practices away from the costly fee-for-service business model in favor of contracts that provide incentives to keep patients healthy.
Signify Health employs over 2,000 people, including about 110 in Norwalk, and posted $610.6 million in revenue in fiscal 2020.
In a sign of the healthcare technology sector’s appeal, Signify raised $564 million in an IPO in February initially expected to top out at $100 million.
Do the companies’ businesses overlap?
Absolutely, CareCentrix argues in its complaint. Lanznar had access to information including financial data, business plans, product specifications and even a 2020 competitive SWOT analysis on CareCentrix’s main competitors — including Signify. Lanznar sent emails containing proprietary information to Signify using his CareCentrix work email address, the complaint alleges.
“This case is not about a theft of trade secrets. There was none. It is about an attempt by CareCentrix to try to stifle what it perceives to be a potential competitor,” Signify argued in an answering brief. Signify’s products overlap with CareCentrix’s only in limited areas, the company said, adding that the Hartford company’s lawsuit was likely motivated in part by jealousy over the company’s blockbuster IPO.
Lanznar has been placed on administrative leave pending the resolution of the case, Signify said.
Restrictive covenants in employment — which prevent workers from competing against their former employer, soliciting its customers or using company information for their own purposes — are a constantly evolving field of law and can present challenges to companies, said Jonathan B. Orleans, chairman of the labor and employment law practice at Pullman & Comley.
“It’s definitely a constant, and I think perhaps as business in general gets more technologically oriented and technology dependent maybe there’s been a little bit more of it,” Orleans said.
Employers should make policies around restrictive covenants transparent and consistent to prevent the theft of trade secrets, Orleans said.
“You can’t absolutely prevent it. What you can do is have clear and enforceable agreements so that you’re in as strong a position as possible if some unscrupulous employee or former employee violates those agreements,” Orleans said. Agreements with employees should be crafted with restraint in mind, he added.
“Courts are not automatically inclined to enforce restrictive covenants because they’re seen as restraints of trade that are arguably anticompetitive and that impede people’s right to make a living,” Orleans said. “If you’re attempting to enforce one of these agreements, you have to convince a court that it’s reasonable and necessary to protect some legitimate interest that you have as the former employer.”
Lawmakers have also taken aim at restrictive covenants this year in the state legislature, with one bill exempting workers who earn less than three times the minimum wage from non-compete agreements and curbing the terms of agreements for workers at higher wage levels.
“Non-compete agreements provide protection for businesses from the loss of trade secrets, emerging technologies, client lists and other confidential and proprietary information,” said Connecticut Business & Industry Association lobbyist Eric Gjede in testimony against the measure. As of press time, the legislation had been referred to the Judiciary Committee.
Consult with attorneys and make sure any agreement with a worker doesn’t overreach in relation to the employee’s scope of work, time limit, and geographic limitations, Orleans said. Provisions like paying key employees to stay out of the workforce for a period of time between jobs — called “garden leave” in the U.K. — can also make workers less likely to challenge restrictions. Companies can use that time to safeguard secrets and protect customer relationships.
Executive job switches can spark lawsuits even among industry giants: CVS Health sued Cigna in Rhode Island district court earlier this year over the defection of Timothy M. Brown, described in filings as a “highly compensated former regional Chief Medicare Officer.” Smith left CVS Health subsidiary Aetna for competitor Cigna after helping his former employer develop its Medicare Advantage strategy for the 2022 plan year.
Businesses are often willing to sue over cases like Smith’s and Lanznar’s because they fear further loss of trade secrets, Orleans said.
“Companies, they’re also trying to send a message to their other employees,” Orleans said. “Any company that brings a lawsuit like this is on some level attempting to communicate to existing employees who might be thinking about doing the same thing: ‘Stop and think. We’re serious about this, we will come after you if you violate these covenants.’ There’s a message that’s sent.”
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