Radio shock jock Howard Stern currently has a contract with Infinity Broadcasting, a division of Viacom, which expires in 2006. Stern recently announced he had signed a deal with to join Sirius satellite radio after his Infinity contract expires.
What’s the corporate law problem? According to the LA Times:
Analytically, the initial issue is whether Stern is an agent of Infinity. According to the Restatement (Second) of Agency:
As an agent, Stern is entitled to begin preparing to compete with Infinity. Comment e of section 393 of the Restatement (Second) of Agency provides that an agent can make arrangements to compete with his principal even before the termination of the agency, but that he cannot properly use confidential information peculiar to his employer’s business and acquired therein.
In addition, Stern’s show includes a number of side-kicks, whom he has solicited to follow him to the new show on Sirius. Again, comment e to Restatement (Second) of Agency is relevant:
What’s the corporate law problem? According to the LA Times:
“Stern has already begun promoting Sirius on his website, and many people speculate that he will do the same on Infinity's airwaves.”If so, Stern appears to have violated his fiduciary duties to Viacom (he may also be in breach of contract).
Analytically, the initial issue is whether Stern is an agent of Infinity. According to the Restatement (Second) of Agency:
An agency relationship exists if you have a manifestation of consent by one person (the principal) that another person (the agent) act (a) on the principal’s behalf; and (b) subject to the principal’s control; and (2) the agent’s consent to so act.The employment contract between Stern and Infinity for him would suffice to demonstrate the requisite consents.
As an agent, Stern is entitled to begin preparing to compete with Infinity. Comment e of section 393 of the Restatement (Second) of Agency provides that an agent can make arrangements to compete with his principal even before the termination of the agency, but that he cannot properly use confidential information peculiar to his employer’s business and acquired therein.
“Thus, before the end of his employment, he can properly purchase a rival business and upon termination of employment immediately compete. He is not, however, entitled to solicit customers for such rival business before the end of his employment nor can he properly do other similar acts in direct competition with the employer’s business.”Because promoting Sirius on the air and at his website almost certainly would be deemed an effort to solicit customers, Stern is in a clear breach of fiduciary duty.
In addition, Stern’s show includes a number of side-kicks, whom he has solicited to follow him to the new show on Sirius. Again, comment e to Restatement (Second) of Agency is relevant:
“The limits of proper conduct with reference to securing the services of fellow employees are not well marked. An employee is subject to liability if, before or after leaving the employment, he causes fellow employees to break their contracts with the employer. On the other hand, it is normally permissible for employees of a firm, or for some of its partners, to agree among themselves while still employed, that they will engage in competition with the firm at the end of the period specified in their employment contracts. However, a court may find that it is a breach of duty for a number of the key officers or employees to agree to leave their employment simultaneously and without giving the employer an opportunity to hire and train replacements.”To the extent Stern induces the sidekicks to break their own employment contracts, there clearly would be a problem. In addition, courts are much less forgiving of employee solicitation when the solicitor has a supervisory role vis-à-vis those who are solicited. On the whole, however, this strikes me as a much less clear cut case than the problem of soliciting customers of terrestrial radio to shift to satellite.
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