Small Business Corner: How to Hire From a Competitor and Avoid a Lawsuit

Hiring from Competitor A lot of my clients are small business owners, so I’d like to dedicate some of my articles to the common legal issues faced by smaller companies. This is the first of such articles.  As usual, it explains how to minimize the risk of litigation, but should you find yourself in a (legal) pickle, you know who to call.

In this post I describe the steps that a company should take when hiring employees from a competing company. While following these steps will not eliminate the risk of litigation completely (the only thing that would accomplish that is NOT hiring from a competitor), it will greatly minimize the risk of a company getting involved in a lawsuit related to a hiring of such an employee.  The advice is based on my experience in representing companies and their competitors on both sides of disputes arising out of employees jumping ship from one competitor to another:

1.  Gather information about the old job. When hiring from competition, you need to know what the employee did at the old company and whether there will be any overlap with what he will be doing at your company. To that extent, during the interview (or before) have the employee provide you the following information: their title and the job description at the old company, what types of information they had access to, and a copies of any agreements they signed with the old company that might have non-compete or non-disclosure covenants.

During the interview, determine what materials of the former employer the employee might still have in his or her possession (documents, electronic files, laptop, flash drives, e-mails, etc.). Take care not to ask the specifics about the competitor’s clients or other information that the competitor might consider proprietary.   However, do ask about the types of information that the employee had access to at his old job.

2.  If an employee is subject to a non-compete agreement, consider the alternatives.  If the new potential hire has a non-compete with the old company, review the agreement and determine whether it is enforceable. If the agreement is enforceable, consider whether the new hire may be placed in a different geographic area or a position at your company that will not violate the terms of the non-compete covenant until such covenant expires.

3.  Include protective language in the offer letter. Make sure that the offer letter to the new hire clearly states that the employee will not disclose any trade secrets of their former employer during their employment with your company and will not transfer any of the old employer’s information or documents to your company’s computer system.

4.  Do the same with the employment agreement. Include the same language in the employment agreement, and make sure that both the offer letter and the employment agreement’s terms are the same in that respect and that the employee clearly represents to your company that he will not bringing on board or using any of his former employer’s confidential information.

Whether an employee’s former company might sue your company because of your new hire depends on the language of the former employee’s non-compete agreement, the former company’s history of enforcement of such agreements, what information the employee had access to while at the old employer and how high up the corporate ladder he or she was, and a few other factors, all of which should be considered prior to making the hiring decision.  Following the above steps can minimize the company’s risk of being sued for hiring a competitor’s employee, but when in doubt, consult with an employment attorney before making the hire decision.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

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