Advanced Computing in the Age of AI|Sunday, February 28, 2021
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VMware and Nutanix Battle It Out Over New Executive Hiring 

When hyperconverged infrastructure vendor Nutanix announced the hiring of Rajiv Ramaswami as its new CEO on Dec. 9, the company had found a successor to company co-founder and CEO Dheeraj Pandey, who earlier in 2020 unveiled his own plans to retire.

But just 19 days later, the new hire hit the headlines, and not in a good way, as VMware, where Ramaswami had served for four years as the chief operating officer for products and cloud services, sued Ramaswami, alleging that he breached his legal, fiduciary and contractual duties and obligations during his job transition process. VMware filed its lawsuit Dec. 28 against Ramaswami in Superior Court of the State of California in Santa Clara County.

Rajiv Ramaswami, CEO of Nutanix, former VMware COO

“For at least two months before resigning from [VMware], at the same time he was working with senior leadership to shape VMware’s key strategic vision and direction, Mr. Ramaswami also was secretly meeting with at least the CEO, CFO, and apparently the entire Board of Directors of Nutanix, Inc. to become Nutanix’s Chief Executive Officer,” VMware wrote in a statement. “He joined Nutanix as its CEO only two days after leaving VMware.”

Ramaswami “demonstrated poor judgement and had a clear and extended period of conflict of interest,” the lawsuit alleges. “He should have disclosed this conflict of interest to VMware so that the company could have taken steps to protect itself. But he did not notify VMware, and thus deprived the company of the ability to do so by concealing his Nutanix-related activities.”

VMware said it tried to resolve the matter without litigation but alleged that Ramaswami and Nutanix “refused to engage with VMware in a satisfactory manner.”

A VMware spokesperson told EnterpriseAI that “at the highest level, the lawsuit is really about accountability. The company expects its employees, and actually more so its executive officers, to honor their obligations and commitments to the company. Mr. Ramaswami breached his fiducial obligations and duties of loyalty.”

While Ramaswami was “secretly meeting with Nutanix’s CEO, COO and its board members and exploring and brainstorming about Nutanix and its future, he was also making and influencing key business decisions, investment decisions and acquisition decisions for VMware, specifically including areas where Nutanix and VMware compete,” the spokesperson said.

Nutanix Disputes the Allegations

In a response to VMware’s lawsuit, Tonya Chin, Nutanix’s vice president of communications and investor relations, wrote in a Dec. 29 post on the company’s blog that “VMware’s lawsuit seeks to make interviewing for a new job wrongful. We view VMware’s misguided action as a response to losing a deeply valued and respected member of its leadership team.”

Instead, “Ramaswami and Nutanix have gone above and beyond to be proactive and cooperative with VMware throughout the transition,” wrote Chin. “Nutanix and Mr. Ramaswami assured VMware that Mr. Ramaswami agreed with his obligation not to take or misuse confidential information, and VMware does not contend otherwise. However, VMware requested that Mr. Ramaswami agree to limit the ordinary performance of his job duties in a manner that would equate to an illegal non-compete covenant, and it requested that Nutanix agree not to hire candidates from VMware in a manner that Nutanix believes would be contrary to the federal antitrust laws.”

Nutanix contends that VMware’s management team sued him “just because he chose to pursue an opportunity to become a public company CEO,” wrote Chin. “We believe that VMware’s action is nothing more than an unfounded attempt to hurt a competitor and we intend to vigorously defend this matter in court.”

Employment Law Experts Weigh In

Attorney Jonathan Pollard

Jonathan Pollard, a Florida attorney who specializes in non-compete and trade secret litigation and Orly Lobel, a law professor at the University of San Diego, told EnterpriseAI that the case is noteworthy, particularly because California law does not recognize non-compete agreements in job changes.

“There is nothing unlawful or tortious about an executive talking with other companies about future employment opportunities,” said Pollard. “Unless VMware has evidence that Mr. Ramaswami misappropriated trade secrets, this seems like just another example of a company abusing the legal process to prevent fair and ordinary competition. Companies need to stop acting like they own people.”

Law professor Orly Lobel

What California law does include, said Lobel, is a duty of loyalty liability, which means that while an employee is still working for one company they cannot work for another.

“So, they are correct that if he spent months working de facto for a competitor that is a breach,” she said. “On the other hand, Nutanix is also correct that mere preparation to leave – including interviewing with competitors for a new position – is completely lawful. As long as there were no trade secrets disclosed, that kind of interviewing, planning, negotiation over a new offer is OK.”

On his first day as the new CEO of Nutanix, Ramaswami wrote in a post on the Nutanix blog that he was excited to be joining his new company.

“Today, I step into the CEO role at Nutanix with more than three decades of experience working in the technology industry,” he wrote. “Prior to VMware, I held various senior leadership roles at industry leading companies including Broadcom, Nortel and Cisco after having begun my career at IBM. Over that time, I have gained an appreciation for the important role that people, technology and product together play in building winning enterprises.”

The new year “brings the next stage in Nutanix’s evolution and transition to a software subscription model, reinforcing our leadership position in hyperconverged infrastructure and advancing our leadership in multi-cloud infrastructure,” wrote Ramaswami. “All while innovating and creating customer value in new and adjacent areas, as well as deepening our investment and commitment to our partners. Our strong culture of innovation is key to the next decade. As we continue to navigate the challenging environment around us driven by the ongoing global pandemic, I believe that with perseverance, grit, and the imminent arrival of vaccines, we will emerge stronger and more resilient than ever before.”

Ramaswami earned his B. Tech degree in electrical engineering from the Indian Institute of Technology in Madras, and his Master’s Degree and PhD in electrical engineering and computer science at the University of California, Berkeley. He is an Institute of Electrical and Electronics Engineers (IEEE) Fellow and holds 36 patents, primarily in optical networking.

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