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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:
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.
For guidance on obtaining social media information about employees, see
> OBTAINING INFORMATION REGARDING JOB APPLICANTS AND EMPLOYEES FROM SOCIAL MEDIA WEBSITES
RESEARCH PATH: Labor & Employment > Privacy, Technology, and Social Media > Monitoring and Testing Employees > Practice Notes > Monitoring Employees
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
RESEARCH PATH: Labor & Employment > Employment Policies > Company Property and Electronic Information > Practice Notes > ElectronicInformation Policies
For additional information on state laws concerning employer access to social media accounts, see
> THE “REFERENCES AND BACKGROUND CHECKS” COLUMN OF CHART – STATE PRACTICE NOTES(SCREENING AND HIRING)
RESEARCH PATH: Labor & Employment > Jurisdictional Considerations > State Charts and Surveys > Practice Notes > State Practice Note Charts
For assistance on assessing whether a restrictive covenant is valid, see the section entitled
> “DETERMINING THE SCOPE OF THE EMPLOYER’S PROTECTIONS” IN PRE-LITIGATION STEPS IN TRADE SECRET MISAPPROPRIATION AND BREACH OF RESTRICTIVE COVENANT LITIGATIONS
RESEARCH PATH: Labor & Employment > Employment Litigation > Restrictive Covenants and Trade Secrets > Practice Notes > Enforcing Restrictive Covenants
For a discussion on the fundamental aspects of restrictive covenants, see
> UNDERSTANDING RESTRICTIVE COVENANT BASICS (INCLUDING ADEQUATE CONSIDERATION, PROTECTABLE INTERESTS, GEOGRAPHIC AND TIME RESTRICTIONS, AND PERMISSIBLE SCOPE)
RESEARCH PATH: Labor & Employment > Noncompetes and Trade Secret Protection > Restrictive Covenants > Practice Notes > Restrictive Covenant Fundamentals
For a list of the steps to follow to draft an enforceable noncompete agreement, see
> UNDERSTANDING, NEGOTIATING, AND DRAFTING NON-COMPETES
RESEARCH PATH: Labor & Employment > Noncompetes and Trade Secret Protection > Restrictive Covenants > Practice Notes > Non-competes
For information on the requirements for employee and customer non-solicitation agreements, see
> UNDERSTANDING, NEGOTIATING, AND DRAFTING CUSTOMER AND EMPLOYEE NON-SOLICITATION AGREEMENTS
RESEARCH PATH: Labor & Employment > Noncompetes and Trade Secret Protection > Restrictive Covenants > Practice Notes > 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
RESEARCH PATH: Labor & Employment > Non-competes and Trade Secret Protection > Restrictive Covenants > Practice Notes > Confidentiality/Non-disclosure Agreements
For advice on applying restrictive covenants at all stages of the enforcement process, see
> ENFORCING RESTRICTIVE COVENANTS
For information concerning the return of employer property, see
> DRAFTING EXIT INTERVIEW AND RETURN OF COMPANY PROPERTY POLICIES
RESEARCH PATH: Labor & Employment > Employment Policies > Separation of Employment > Practice Notes > Post-Termination Policies
For a sample separation-of-employment policy, see
> EXIT INTERVIEWS AND RETURN OF COMPANY PROPERTY POLICY
RESEARCH PATH: Labor & Employment > Employment Policies > Separation of Employment > Forms > Exit Interview and Return of Company Property Policies
For information on garden leave periods, see
> UNDERSTANDING, NEGOTIATING, AND DRAFTING GARDEN LEAVE PROVISIONS
For more information on cease and desist letters, see
> PRE-LITIGATION STEPS IN TRADE SECRET MISAPPROPRIATION AND BREACH OF RESTRICTIVE COVENANT LITIGATIONS
RESEARCH PATH: Labor & Employment > Employment Litigation > Restrictive Covenants and Trade Secrets > Practice Notes > Trade Secret Enforcement
For an annotated cease and desist letter to a new employer, see
> CEASE AND DESIST LETTER TO NEW EMPLOYER REGARDING POST-EMPLOYMENT RESTRICTIONS
RESEARCH PATH: Labor & Employment > Employment Litigation > Restrictive Covenants and Trade Secrets > Forms > Preparing for Potential Restrictive Covenant Litigation
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