Does Wynn have a viable case against Fontainebleau?

written by I. Nelson Rose

Are noncompete clauses in gaming executive contracts enforceable?

That’s a question that could emerge as Wynn Las Vegas’ recent lawsuit against Fontainebleau Las Vegas moves forward. The suit accuses Fontainebleau of illegally poaching Wynn executives under contract.

Legal and academic experts say Wynn presented all the right elements in its Feb. 29 legal action against its Strip neighbor.

Wynn officials say they see efforts to steal their employees whenever a new Strip resort opens, but Fontainebleau efforts have been persistent since mid-2022, even after leaders of both resorts met and hammered out an understanding with Fontainebleau promising to stop recruiting from Wynn, which it said had “an unhealthy obsession with everything Wynn, from its amenities to its employees.”

“My first thought was maybe this isn’t real, because it sounds like such good PR for Wynn to say, ‘Wynn resorts are so good that the Fontainebleau is trying to copy us,’” said gaming industry legal expert I. Nelson Rose, based at Utah State University in Logan.

“But, it looks like Fontainebleau really may be trying to steal away top Wynn employees,” he added.

In January and February, according to the lawsuit, Fontainebleau tried to persuade Wynn’s senior executive director of nightlife and the head of the XS Night Club and Encore Beach Club to leave Wynn and work for Fontainebleau. The effort was unsuccessful, but Wynn said it was costly because the company had to give the executive a raise to prevent him from jumping ship.

Wynn is seeking an injunction to stop the poaching and for damages in excess of $15,000 in the lawsuit. The deadline for Fontainebleau to respond to the lawsuit filed in Clark County District Court is still days away, and the company has a policy of not commenting about pending litigation. Wynn officials on Friday said they had no additional comments.

Rose said judges generally do not like noncompete clauses in contracts because they prevent people from working in their fields of expertise.

“And they are usually included when a person is first hired and has the least bargaining power,” he said. “You can’t really say, ‘Thanks for hiring me. Now can we talk about what restrictions there are after I leave to work for your competitors?’”

Rose said attempted enforcement of noncompete clauses usually occurs with actions against a departed employee.

“To go after a third party, here Fontainebleau, Wynn has to prove intentional interference with current or prospective business relations,” Rose said. “Wynn’s lawyers did a good job of naming specific approaches allegedly made to its top employees. Plus, Wynn looks like the good guys, having tried to work this out before.”

Jeff Lolli, a professor of sports, event, tourism and business management at Widener University in Chester, Pennsylvania, and a former gaming industry executive, said noncompete clauses are illegal in California, Colorado, Minnesota, North Dakota and Oklahoma, but not Nevada. Several federal agencies, including the Federal Trade Commission and the National Labor Relations Board, are trying to ban them because they say they unlawfully interfere with employees’ protected rights.

Lolli found it unusual that Wynn has noncompete agreements for positions like executive chef and sous chef since those types of agreements are generally reserved for CEOs and executive vice presidents and are designed to keep trade secrets from being stolen by rival companies.

“What Fontainebleau was doing isn’t necessarily illegal,” Lolli said. “It’s more unethical or immoral if you want to call it that way, but poaching happens all the time in every industry, not just the casino industry. Let’s be honest, most people, especially in high-level positions, get their jobs because they know somebody who knows them.”

Lolli said there may be more to the breach of contract issue. Normally there’s some form of penalty assessed when an executive leaves before the contract concludes, he said.

Another element of the Wynn-Fontainebleau case is that early in the process, Fontainebleau assured some of the executives they convinced to move that they would be working outside the Las Vegas market at Fontainebleau’s flagship Miami property and not in Las Vegas. But as the Las Vegas property got closer to opening in December, there was no prior indication the Wynn workers were heading to Miami first.

In the lawsuit, Wynn cited nine examples of poached employees. In the end, the company finally decided to do something about it.

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