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10 Feb 2017
Best Practices to Reduce Litigation Risks When Hiring From A Competitor
By: Michael P. Pappas, Michael P. Pappas Law Firm, P.C.
This article discusses ways to reduce the risk of litigation when hiring someone away from a competitor. Litigation involving trade secrets, non-compete agreements, and other postemployment restrictive covenants has grown exponentially, roughly doubling every decade since 1980. Often, these lawsuits are directed not only at the departing employee, but also at the employee’s new employer. Many unsuspecting employers have found themselves roped into costly and time-consuming litigation after hiring a competitor’s former employee.
ALTHOUGH IT IS IMPOSSIBLE TO COMPLETELY ELIMINATE the risk of litigation when hiring from a competitor, below are key issues to consider and steps to take to reduce that risk and be better prepared to defend any legal action that might arise:
- Consider how litigious the industry is
- Consider who you are hiring
- Advise interviewers on interviewing candidates from competitors
- Seek full disclosure from job candidates
- Obtain written protections
- Make sure the new hire leaves his or her former employer without incident
- Create institutional protections (i.e., ethical walls)
- Understand potential claims against the hiring employer
- Effectively handle cease and desist letters
- Consider pre-litigation settlement strategies
- Ensure continued compliance
- Leave the hiring employer an out
Know How Litigious the Industry Is
If an organization frequently hires from competitors, it should familiarize itself with general hiring customs in the industry, including how aggressively (if at all) employers seek to enforce post-employment restrictive covenants. In many industries, there is a general understanding that employees jump from employer to employer, or that employees take their personal clients with them when changing employers. In those industries (e.g., advertising, retail), enforcement of restrictive covenants is not a high priority, and litigation is relatively rare. Conversely, in hyper-competitive industries where information and clients are jealously guarded (e.g., technology, insurance), the risk of becoming embroiled in restrictive covenant litigation is significantly higher. In other fields, such as the financial sector, competitors have joined together to reduce costly litigation by establishing written protocols governing the recruitment and hiring of each other’s employees. See Protocol for Broker Recruiting. An understanding of restrictive covenant litigation practices in a particular industry can help an employer better evaluate the potential risks of hiring someone from one of its competitors.
To read the full practice note in Lexis Practice Advisor, follow this link.
Michael P. Pappas is the principal and founder of the Michael P. Pappas Law Firm, P.C., specializing in employment litigation, counseling, compliance, and administrative charge response. Prior to starting his own firm, Mr. Pappas practiced at the nation’s leading employment law firms for more than 25 years. He is also the President and C.E.O. of Employment Compliance Advisors, LLC, a legal consulting firm.
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For a detailed list of state laws that regulate employer access to employees’ social media accounts, see > STATE LAWS ON EMPLOYER ACCESS TO SOCIAL MEDIA ACCOUNTS CHART |
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For assistance on assessing whether a restrictive covenant is valid, see the section entitled |
For a discussion on the fundamental aspects of restrictive covenants, see |
For a list of the steps to follow to draft an enforceable noncompete agreement, see |
For information on the requirements for employee and customer non-solicitation agreements, see > UNDERSTANDING, NEGOTIATING, AND DRAFTING CUSTOMER AND EMPLOYEE NON-SOLICITATION AGREEMENTS |
For a step-by-step approach to creating a non-disclosure agreement, see > UNDERSTANDING, NEGOTIATING, AND DRAFTING NON-DISCLOSURE AGREEMENTS ON BEHALF OF EMPLOYERS |
For advice on applying restrictive covenants at all stages of the enforcement process, see |
For information concerning the return of employer property, see > DRAFTING EXIT INTERVIEW AND RETURN OF COMPANY PROPERTY POLICIES |
For a sample separation-of-employment policy, see |
For information on garden leave periods, see > UNDERSTANDING, NEGOTIATING, AND DRAFTING GARDEN LEAVE PROVISIONS |
For more information on cease and desist letters, see |
For an annotated cease and desist letter to a new employer, see > CEASE AND DESIST LETTER TO NEW EMPLOYER REGARDING POST-EMPLOYMENT RESTRICTIONS |
For guidance in drafting a letter to a former employee who may be violating his or her post-employment restrictions, see > CEASE AND DESIST LETTER TO FORMER EMPLOYEE REGARDING POST-EMPLOYMENT RESTRICTIONS |