Hiring Employees From Competitors

Hiring employees away from a competitor can be an invitation to litigation. This is a listing of the items that should be considered – with the help of an experienced counsel. Some of these items may not apply where the person is not now working for the competitor:

• Get and review any agreements between the employee and his or her current employer.

• Decide what state’s law will apply in interpreting any covenant not to compete, or deciding what is a trade secret.

• Understand the circumstances under which agreements were signed –

– Post employment

– Preemployment

– Without additional consideration.

• Is the contract reasonably drawn to protect a legitimate protectable interest of the former employer.

• Whether and to what extent will the contract as drafted proscribe the individual’s anticipated duties.

• Is there is any type of confidentiality or noncompetition restriction in any handbook, operating manual, or procedure manual.

• What information is considered confidential in the industry and what information is readily ascertainable or generally known.

• Why did the employee leave and whether any grounds exist for invalidating or limiting any agreement.

– Dismissal without cause

– Material adverse change in terms and conditions of employment

– Reduction in commission or territory

– Change in assigned customers

– Creation of house accounts.

• Ensure all preemployment interviews are conducted carefully.

– Make it clear you are not interested in the competitor’s trade secrets and will honor valid agreements.

– Do not ask for specific information about the competitor. Limit discussions to general information publicly known.

– Avoid questions that could be seen as efforts to get trade secrets.

– Discussion of the applicant’s annual sales is appropriate.

– Do not review commission reports.

• Avoid statements internally and in discussions with the applicant that could later be used against you.

• Correspondence with the applicant should be drafted with an eye to potential litigation.

• No emails to/from the employee through or using the email/computer system of the former employer or a computer owned by the former employer.

• Ensure all discussions with the potential new employee are conducted after regular business hours.

• Make sure terms of employment offered are not considered as providing an incentive to steal business.

– Use standard commission plans and arrangements.

– Use a minimum or guaranteed draw only on the same terms as granted other new sales employees.

– Avoid new account bonuses or other incentives for new business that are not part of your standard commission arrangements.

– Avoid indemnification agreements regarding litigation by the former employer.

– Do not give the new employee’s customers special considerations like automatic credit or special terms granted by the former employer. Grant these terms only if the customer asks for them.

• Have the new employee sign an agreement saying they are not a party to any court orders or agreements other than specific ones provided.

• Send the new employee a memo indicating he or she is not to use or disclose to you legally protected trade secrets of any third party, should not retain or use any documents of the former employer, and should advise you if any assignment calls for the employee to use trade secrets of the former employer.

• Be certain any steps taken are consistent with the your own agreements, and that any information of the former employer is treated the same way as you treat your own information of a similar nature. Any information of the former employer of the type considered confidential by you should not be turned over to or requested by you. If it has been, then it should be returned or delivered to counsel.

• Instruct the new employee not to download, copy or email any document or files of the former employer before or after leaving without express permission, and to confirm that permission in writing if it is granted.

• Instruct the new employee to purge all information of the former employer from any personal computer after copying to a disk and sending back to the former employer. The new employee should return any documents of the former employer he or she retained at home.

• Instruct the new employee not to “warehouse deals” before resigning, or advise accounts that he or she is leaving while still employed.

• Instruct the new employee not to engage in any work for you before resigning.

• Make sure the new employee resigns all offices and director or manager positions with the former employer when he or she turns in a resignation or gives notice of a resignation. Have this done in writing.

• The new employee should turn in his or her cellular phone upon resignation and not use it to deal with you. The new employee should be instructed to return all property of the old employer, including laptop computers, handheld devices, credit cards and cell phones, even if the former employer does not ask for them. Nothing should be deleted from the company computers or handheld devices before they are returned.

• If possible assign the new employee accounts and territories over and above his or her old accounts and territory.

– Consider a phase in of solicitation activities as to former accounts.

– Be careful not to have the new employee initially only work on his or her book of business. Efforts should be made for the new employee to also work on other business if possible.

– Consider a phase in of duties and accounts within the territory the new employee had with the former employer.

• Instruct other employees not to discuss information about the former employer with the new employee, or assist him or her in soliciting accounts of the former employer.

• Design a strategy for dealing with potential new customers.

– Draft any communication by the new employee to potential accounts.

– Limit communications to an announcement of the new position, as opposed to any solicitation of business or sales information.

– Be careful about using the term “competitive” prices or other statements that suggest knowledge or use of inside information of the former employer.

– Be certain that communications do not violate the Lanham Act and its restrictions on deceptive advertising.

– Focus on your products and not disparagement of the former employer. Avoid the use of disparaging inside information about the former employer.

– Have the new employee log all unsolicited contacts by former customers.

• Calls to the new employee by former coworkers concerning potential employment should be handled by stating the employee is not at liberty to discuss the topic with them, or referring them to the HR director.