Hiring Employees From Competitors

May 10, 2016

Topics: Hiring and Recruiting

In January 2015, Apple, Google and other technology companies agreed to pay $415 million to settle claims that they had conspired not to poach each other’s employees.   The settlement may leave the impression that there should be no restrictions on the ability of employees to move from one employer to another.  However, restrictions do exist and could pose a risk to a new employer.

Here are some considerations for a company, let’s call it Acquire, seeking to hire a current employee of its competitor, Competore.

The key question is whether the employee has any agreements with Competore restricting his or her ability to work for a competitor after leaving Competore’s employ.  Typical restrictions are:

  • confidentiality provisions, which bar the employee from disclosing or using Competore’s confidential or proprietary information or trade secrets for any reason;
  • non-compete provisions, which restrict the employee from working for one or more of Competore’s competitors;
  • non-solicitation of clients or customers provisions, which restrict the employee from enticing away current (and perhaps potential) clients or encouraging clients to cease doing business with Competore; and
  • non-solicitation of employees provisions, which restrict the departing employee from encouraging others to follow.

Each of the restrictions may be limited in duration (specifying the number of years the restriction is in place), or geographic scope (a specific area or market in which the restriction applies).  The employee may be generally restricted from working for a competitor or more specifically restricted from working in certain job functions.  In order for the agreement to be enforceable, these limitations need to be reasonable.  Most states will not enforce restrictive agreements that prohibit the employee from subsequently working and earning a living.

Whether the restrictions will be enforceable, and whether those restrictions are, indeed, reasonable, is generally determined by state law and the results of such an analysis can change depending on which state’s law applies.  For example, some states require employees to be given specific consideration (exchange) for signing such agreements.  In other states, employment or continued employment is considered sufficient exchange.

If the restrictions are enforceable and will be breached by the employee’s move to Acquire, then Competore may have a claim against both the employee and Acquire.   For that reason, companies would be prudent to check with potential hires as to whether they signed any restrictive agreements, and ask to see them if they did, before bringing any new employees on board.

To reduce the risk of litigation from Competore, Acquire should: (i) seek counsel to determine the enforceability of any non-compete agreements or other restrictive covenants signed by the employee, and determine whether the agreement could be breached by the employee’s move; (ii) instruct the employee not to inform any of Competore’s clients that he or she is moving/has moved to Acquire;  and (iii) instruct the employee not to bring, disclose or use any of Competore’s confidential information or trade secrets to Acquire (including but not limited to client contact information, company policies, sample documents, or anything else utilized at Competore).

Hiring employees away from competitors often seems like a good idea because the employee is familiar with the industry and may be a “plug and play” fit in your company.  Such hiring decisions should only be made, however, after fully understanding any restrictions imposed on the individual’s post-employment actions, and after determining whether bringing that individual on board could implicate legal risks for the new employer.