The talent market is increasingly fluid, with many businesses following the talent development mantra “if you can’t beat 'em, hire 'em.” Poaching from a competitor is not without risk. However, there are reasonable steps that should be taken to reap the rewards of the fluidity of today’s talent pool while managing the risks. Two principal risks in “poaching” are trade secret misappropriation and interference with a contract. Some employers seek to build on the lessons learned by their competition, and to do so does not inherently violate the law. However, an employer may misappropriate trade secrets by obtaining trade secrets from its new hires.
When hiring, an employer needs to discern between an employee’s innovative ideas and those the employee “brought” with her from her prior position. And a new hire may come subject to contractual restrictions. The following are some suggestions for how to minimize those risks and the risk of your company becoming embroiled in a lawsuit with the former employer.
Ask to see the contracts
Early in the interview process, you should ask whether your prospective employee is bound by any contractual restrictions, such as non-disclosure obligations, non-competition restrictions or non-solicitation restrictions. If the answer is yes, you should ask to see copies of the contracts that contain these restrictions and question the employee about the circumstances under which he or she entered into the contracts. You should also have your corporate attorney review the contracts to determine whether the restrictions are enforceable.
Indeed, some less-than-forthcoming prospective employees may not fully appreciate the terms that were incorporated in letter agreements or contracts. To avoid uncertainty, it is entirely reasonable to request to see such documents. An unwillingness to share such details is a red flag and can help you avoid claims. You should also confirm that the prospective employee has not harvested materials from her employer’s computers, and you should be clear that he or she must not do so. While some say imitation is the best form of flattery, the line between innovation and theft is not so gray.
Is the hire worth the prospective cost?
You are faced with a business decision about whether to hire the employee despite the restrictions when a prospective employee is bound by contractual restrictions. Factors you should consider include:
- Your attorney’s opinion on whether the restrictions are likely enforceable or unenforceable.
- The likelihood that the prospective employee’s former employer would file a lawsuit in an attempt to enforce the restrictions.
- The appetite of the prospective employee’s former employer for litigation.
- The importance of the prospective employee to your organization.
- The value of the prospective employee versus the cost of litigation.
You should also be aware that if a prospective employee’s former employer files a lawsuit, the lawsuit will likely be filed against the potential employee and your company. You should determine whether your company wants to be and can afford to be involved in such litigation. You should also be aware of the potential causes of action that might be filed against your company.
Finally, what is good for the goose is good for the gander. You should bear in mind the prospective employee’s willingness to violate employment agreements, as you may someday find yourself at loggerheads with this person if hired.
Should you hire a prospective employee who is breaching a contractual restriction by accepting employment, the early days of employment may be spent in deposition and in courtrooms rather than on your business because the former employer will often seek to enforce the restrictions by seeking injunctive relief on an expedited basis. Defending a motion for a temporary restraining order can be a costly process.
A positive of expedited injunctive litigation is that all parties quickly learn what the court’s thinking is on the enforceability of the restrictions and can attempt to resolve the dispute early in the ligation process. The only certainty, though, is that there will be expense, so you need to ask whether the reward is worth the risk. Further, you need to consider whether you are prepared to fund litigation on behalf of the prospective employee or whether it will be every person for himself.
Building in protections
If you decide to proceed with the hiring, there are further steps you should consider to better protect your company in the event a lawsuit is filed by the prospective employee’s former employer. You should have the employee enter into an employment agreement through which the employee acknowledges and agrees that he or she has not taken and will not use any of the former employer’s confidential information. If the employee has a non-solicitation restriction, you should have the employee acknowledge and agree not to attempt to solicit customers or employees of the former employer.
In addition, if the employee has a non-competition restriction, you might consider placing that employee in a different position or giving that employee different responsibilities than he or she had with the previous employer.
Finally, you might also consider having the employee attempt to negotiate limitations on the restrictions with his or her former employer. If the enforceability of the restrictions is questionable or if the circumstances of the employee’s departure favor the employee, the former employer might be willing to negotiate or waive the restrictions to avoid an adverse ruling from a court that might affect other employees with the same contractual restrictions.
If the employee does not have any restrictions, you should still consider having the employee make a representation in the employment agreement that he or she is not bound by any restrictions and that he or she has not taken and will not use any of the former employer’s confidential information. In addition, you may want to have the employee agree to indemnify you in the event that it turns out the employee is subject to contractual restrictions or takes or uses the former employer’s confidential information.
There is no way to hire a competitor’s employee without risk. However, you can make yourself aware of any contractual restrictions that bind the prospective employee and take the steps outlined above to help manage that risk.