Are there issues to be aware of when hiring a competitor's employees?
August 2, 2007
Employers often may find themselves in a position to hire a competitor's employees. In these cases, it is worthwhile to take some precautionary steps because state courts may find that a new employer's interference with valid noncompete agreements constitutes "tortious interference" with the former employer's relationship with the employee.
An employer should first determine if the employee is subject to any restrictions. An employer should not be satisfied with a vague answer to a question whether the employee has any sort of restrictive agreement with the former employer. The employer should have the employee sign a statement that the individual is not subject to any noncompete or other agreement. If an employer hires a competitor's employee knowing that the employee is subject to a restrictive covenant, the organization could be sued for interfering with the previous employer's contractual rights, just as employers could sue an organization that hired one of their employees subject to such an agreement.
The key to lawsuits regarding violation of another organization's restrictive covenant is the hiring organization's knowledge of the restriction and its decision to employ the person in spite of this knowledge. This is why the first step in such a case may be sending a certified letter by the old employer to the new, putting the new employer "on notice" of the restriction. If, in fact, it can be proven that the nature of an individual's work for the new employer makes it virtually impossible for the individual not to use or disclose the old employer's confidential information, a court may be persuaded to restrain the employee from working for the competition at all.
If an employer learns that a new hire does have a restrictive covenant, the employer should get a copy of it and have legal counsel examine it. It may be that the prohibitive activity does not match the duties of the position to be filled. The agreement may also appear too broad. It may also be that there was no consideration in return for the agreement being signed.
Once an employer knows how enforceable the agreement is, the employer can decide how to proceed. An employer may want to begin negotiations with the other employer in cases where the agreement seems especially strong. The employer should be especially cautious about hiring employees with noncompetition agreements if the organization requires such agreements of its employees. It will be very difficult to enforce agreements, based on what the employer argues is a legitimate reason for having employees sign them, if the employer finds it acceptable to violate another employer's agreements.
This information is adapted from Ceridian's HR Compliance Reference System. Contact your Ceridian representative for more information about Ceridian's compliance solutions.
Employers often may find themselves in a position to hire a competitor's employees. In these cases, it is worthwhile to take some precautionary steps because state courts may find that a new employer's interference with valid noncompete agreements constitutes "tortious interference" with the former employer's relationship with the employee.
An employer should first determine if the employee is subject to any restrictions. An employer should not be satisfied with a vague answer to a question whether the employee has any sort of restrictive agreement with the former employer. The employer should have the employee sign a statement that the individual is not subject to any noncompete or other agreement. If an employer hires a competitor's employee knowing that the employee is subject to a restrictive covenant, the organization could be sued for interfering with the previous employer's contractual rights, just as employers could sue an organization that hired one of their employees subject to such an agreement.
The key to lawsuits regarding violation of another organization's restrictive covenant is the hiring organization's knowledge of the restriction and its decision to employ the person in spite of this knowledge. This is why the first step in such a case may be sending a certified letter by the old employer to the new, putting the new employer "on notice" of the restriction. If, in fact, it can be proven that the nature of an individual's work for the new employer makes it virtually impossible for the individual not to use or disclose the old employer's confidential information, a court may be persuaded to restrain the employee from working for the competition at all.
If an employer learns that a new hire does have a restrictive covenant, the employer should get a copy of it and have legal counsel examine it. It may be that the prohibitive activity does not match the duties of the position to be filled. The agreement may also appear too broad. It may also be that there was no consideration in return for the agreement being signed.
Once an employer knows how enforceable the agreement is, the employer can decide how to proceed. An employer may want to begin negotiations with the other employer in cases where the agreement seems especially strong. The employer should be especially cautious about hiring employees with noncompetition agreements if the organization requires such agreements of its employees. It will be very difficult to enforce agreements, based on what the employer argues is a legitimate reason for having employees sign them, if the employer finds it acceptable to violate another employer's agreements.
This information is adapted from Ceridian's HR Compliance Reference System. Contact your Ceridian representative for more information about Ceridian's compliance solutions.
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