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HOW TO AVOID A LAWSUIT IF YOU ARE GOING TO HIRE AN EMPLOYEE FROM A COMPETITOR

Posted by David Katz | Jul 15, 2018 | 0 Comments

A. WHEN HIRING AN EMPLOYEE FROM A COMPETITOR, MAKE SURE YOU DOT YOUR I'S AND CROSS YOUR T'S.

As employment lawyers, we know that non-competition and non-solicitation agreements typically assist employers in protecting their legitimate business and legal interests. When properly drafted and implemented reasonably, an employer can use these documents to restrict an employee's ability to unfairly compete after he or she concludes their employment. Of course, these documents are aimed squarely at industry competitors by their very nature. Employers are always looking for an edge up on a competitor and what better way to do it than to hire an employee away. The problem is that the employee you may want to hire from a competitor may be coming with baggage in the form of non-competition and nonsolicitation agreement of one kind or another.

Restrictive documents such as noncompetition and nonsolicitation agreements cannot, as a rule, be used to prohibit regular, ordinary competition and furthermore should not necessarily deter your company from considering a competitor's employee. While some employers may decide not to engage in any discussions with a competitor's former employee, there are steps prudent employers can take to limit their exposure to claims of unfair competition when interviewing and hiring employees subject to the following considerations and restrictions:

1. If the employee was at a competitor then you must ask for certain information notwithstanding his position. Put another way, once you start dealing with the potential hiring of a competitor's past employee and an employee from that company apart from the obvious management personnel should be asked about restrictions. In questioning the employee, you must be specific about the restrictions. On the list of things to ask should be a thorough review of what the employee did at his old job. Have the employee provide you with information such as the job description and specific kinds of information that the employee had access to.

2. If the employee has indicated that he or she is subject to certain restrictions make sure you see all of the applicable documents. You must get those documents as quickly as possible and make clear to the prospective employee that any employment consideration is the first subject of whether the company is subject to those earlier employment restrictions. If the employee did have an applicable non-compete, consider whether placing that new employee in a different geographic territory will allow you to hire the employee and, at the same time, be able to get around any restrictions in the non-compete agreements until such time limits in those agreements expire. 

3. If the employee is subject to non-disclosure of any confidential information then that must be enforced. Furthermore, while any decision is pending on the extent and enforceability of the previous restrictions and until further notice, the employee is not to solicit any of the former employer's customers, clients or employees. The better practice would be to have the employees sign off as to non-solicitation in the offer letter or later agreement. In this letter, it must be made plain to the employee that they will not disclose any trade secrets or transfer any of their former employer's information into your company's database. This caveat should also be set out in any employment agreement with the new employee.

Some employers go so far as to reserve the right in certain circumstances to terminate an employee if the former employer brings suit against the new employer, particularly where continued employment of that employee would otherwise jeopardize the interests of the company. Post-employment restrictions can be found in a variety of other agreements such as stock option agreements, deferred compensation agreements, bonus plans and/or purchase and sale agreements. It is imperative that legal counsel such as the Katz Law Group be consulted at this phase of the process in order to help you fully understand your company's rights and liabilities.

4. Anytime you seek to hire a competitor's employee there is always the possibility of litigation right behind. You must do a critical assessment of the reasons surrounding the employee's departure, the similarities between the former and present position and whether the former company makes a practice of going after companies who hire away their employees. A number of companies that I have done business with over the years make it part of their formula to act aggressively in order to set a precedent within their industry. In some cases, the competitor will fold like a house of cards when it receives a cease and desist letter from one of these companies. In other situations, the new employer does it's homework and decides to take its chances going forward.

5. Be sure to ask yourself if this employee is acting honestly under the circumstances in making this transition to your company, particularly where it should be known to this employee as to the potential problems ahead. In my experience, if an employee is willing to engage in dishonest behavior toward a past employer there is great likelihood that your company will be facing the same situation when that same employee decides to leave your employ down the road. 

While following these steps will not completely eliminate the risk of a lawsuit by a former employer, they will, however, greatly mitigate possible damages for the hiring of that new employee. The higher the position of that new employee the more steps you will need to take to ensure that the hiring of the new employee does not later boomerang against your company. At the Katz Law Group, we can assist your organization in mitigating your risks in these situations. Please feel free to call us at 508-480-8202.

About the Author

David Katz

Attorney David S.Katz is the founder and managing partner of the Katz Law Group, P.C., located in Marlborough, Massachusetts...

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