Hiring competitors’ talent while avoiding legal risk

American laws promote competition. Legendary businessman Jack Welch has notably said, “Number one, cash is king… number two, communicate… number three, buy or bury the competition.” Unless an activity runs afoul of a legally valid contract provision or a vetted and adopted statute, competitive actions to “buy or bury the competition” are considered fair game across the country.

In the staffing industry, competition is fierce in efforts to recruit, employ and retain the most talented employees. It is important, therefore, to know the rules of competition so that you can confidently hire the best and brightest employees without constant fear of running afoul of the law.

Know the Risks

The most common legal claims brought in a competitive hiring situation are:

  1. Tortious interference with a contract — when a new employee’s employment violates an enforceable agreement with a prior employer in a manner that benefits a subsequent employer;
  2. Aiding and abetting a breach of fiduciary duty — when a new employee engaged in competitive conduct on behalf of a subsequent employer while still employed with the former employer; and
  3. Misappropriation of trade secrets is related to the Uniform Trade Secrets Act (a variation of this law has been enacted in every state except New York and Massachusetts) — when an employee has allegedly stolen a former employer’s trade secrets and the subsequent employer either participated in or knew about the theft and will benefit from the theft through the employee’s inevitable disclosure or outright use of the trade secrets.

Minimize Risk

While most placed employees are not subject to non-competition clauses preventing them from moving to another staffing agency, placed employees might have been required to sign specific customer forms or agreements that may include other types of restrictive covenants or limitations.

It is important to request and review copies of all forms or contracts a potential hire has signed not only with the current or previous employer, but with any prior users of his or her services through the staffing relationship.

Ask for documents signed in the prior three-year time period by name, including, such contracts as employment agreements, independent contractor agreements, consulting agreements, etc.

If a candidate has been an owner in a prior business, ask for and review stock purchase and stock award agreements as well as operating agreements to ensure there are no limitations on the candidate’s ability to be placed in a particular role or company.

Legal review. Hire a knowledgeable attorney to assess the risks and develop potential legal strategies to minimize or avoid any discovered risks. A potential employee should not recruit or solicit any of the former employer’s current or prospective clients, customers or other employees until a lawyer has given a green light for such activities.

Smooth transition. A new employee must return all materials he received from the former employer before the new employment begins. Employees should also affirm to the new employer that they will not bring any materials from the old employer to its place of business.

Retain key information. Keep notes related to the recruitment and hiring process so there is documentary evidence that your company made reasonable efforts to comply with the law and to ensure compliance by the new hire. More often than not, successfully defending against a dispute over a new hire depends on documentation. Judges and juries tend to subscribe to the belief that if it isn’t in writing, it didn’t happen. One of the primary areas of competition between companies is in the attraction and retention of the best human resources available. Minimizing and managing the risks associated with competitive hiring activities is key to a staffing business’ success.