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Contract Obligations Apply To All

What is worse: a lack of memory or a lack of morals?

The recent appeal by Dunkin' Chief Operating Officer Paul Twohig, caught unaware when a company story went viral, reminds us that even expensive lessons may be quickly forgotten.

From a management standpoint it was surprising that a COO only found out after a story had appeared on several websites: BMM was not the first to report this story. Major companies subscribe to various free and paid services which continually monitor the Internet in real-time, and they proactively address everything from breaking news to Twitter feeds.

Paul Twohig  and Dunkin' Brands should be sensitive to this, having paid $500,000 to learn the difficulty of hiding anything for long in the Internet age.

According to Starbucks, when Twohig quit in March 2009 he signed a separation agreement in which he acknowledged his obligations under a non-compete agreement he signed back in 2004. Twohig took his severance pay and left Seattle for the balmy golf courses of Hilton Head.

But Dunkin' came calling, and in August 2009 Twohig asked Starbucks to be released from his contractual obligations; Starbucks insisted that Twohig honor the contracts.

Starbucks was understandably not pleased when Dunkin' SVP for Human Resources Christine Deputy called in September 2009 and said that Dunkin' was going to hire Paul Twohig. Since Christine Deputy was herself a former SBUX employee, she presumably wasn't surprised when SBUX reminded her that Twohig was subject to contractual obligations and could not work for Dunkin'.

Starbucks found out on October 3, 2009 that Paul Twohig was now working at Dunkin'.

How did SBUX find out this critical piece of competitive intelligence? A private investigator? The rumor mill? A deep-throat source?

No... they found out through an Internet search.

Within 48 hours, Starbucks not only drafted but filed a lawsuit in federal court.

The same day the lawsuit was filed, franchise journalist Janet Sparks reported that Dunkin' chief counsel Steve Horn was leaving Dunkin' and by October 23 a settlement had been reached, with Starbucks being paid $500,000 to discontinue their lawsuit.

For Dunkin'—a company which for decades prided itself on brutally enforcing contractual promises made to it--the Twohig scandal demonstrated not merely a casual hypocrisy but also how contractual promises are not an impediment if you are rich.

For Twohig, the lesson should have sunk in that in the Internet age, it pays to monitor your brand image and not assume that anything goes on in secret anymore.

Can an old dog learn new tricks? For the sake of DNKN stockholders, let's hope that Twohig improves both his morals and his memory.

AttachmentSize
Starbucks v. Paul Twohig COMPL 5Oct2009.pdf202.13 KB
Twohig Notice of Settlement 26Oct2009.pdf55.18 KB
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About Paul Steinberg

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Public Profile

Attorney. Former franchisee. Co-author of Beguiling Heresy: Regulating the Franchise Relationship (Penn State Law Review, 2004). Paul primarily represents small business clients and franchisee litigation in the state of New York. Contact the Law Office of Paul Steinberg, NY, NY at 212-529-5400.

Area of Interest
Franchise Operations