You Hire A Top Performing Employee From Your Competitor And Then She Brings Along “Her Team.”
You’ve been working for months to recruit a competitor’s star employee. She arrives at your office telling you that she resisted counteroffers and is now on board.
Almost immediately, her cell phone begins to ring. Subordinates and co-workers from her former employer (your competitor) want to know if there is a place for them at your company. She explains that she can do the most for your company if she’s got her “team.”
You start making deals.
You make hurried estimates as to the cash flow that might be realized from this sudden acquisition of 20 skilled employees with established customer relationships. You do not consider the effect this exodus will have on your competitor, nor whether it would have been better if the new employees had given advanced notice.
The new employees bring files and equipment and get their offices set up – everyone seems to be operating as a team.
Then you receive a cease and desist letter from your competitor’s lawyer. The lawyer notifies you that your competitor will be appearing in court Monday morning to seek an injunction against your alleged unfair business practices and to enjoin any further hiring of his/her employees or solicitation of customers.
You call your lawyer.
B. 5 Things to Know and Do When Hiring Your Competitor’s Employees.
1. Beware of “team.” When a manager, officer or employee of another company speaks on behalf of other employees of that company, i.e., “my team,” “my group,” “my office,” he/she may be breaching a fiduciary or other duty to their current employer. An officer breaches a fiduciary duty to his current employer if he solicits his current employer’s employees to go to work for a competitor. In most cases, these duties end when the employment ends. Barring the most unusual circumstances, an employee does not breach any duty to his employer in discussing his or her own future plans for employment.
2. Determine whether employees-to-be are “at-will” or have a contract with their existing employer. Make sure you understand any limitations on the employee’s ability to work for a competitor. Enforceable restrictions can include a contract for a specified term. A company that interferes with another company’s employment contracts with its employees can be exposed to civil liability. Sellers of “good will” or an equity interest in a company may also be prohibited from working for competitors. California courts will also act to prevent a former employee from utilizing a former employer’s trade secrets to the disadvantage of the former employer.
3. Make employment offers in writing. The offer should include a statement that the employee bring nothing with them from any former employer and that everything they need to perform their job will be provided by the new employer. Require the employee to represent and warrant that he or she is free to accept the employment with your company and that he/she has not taken anything from his/her former employer.
4. Employees who wish to “follow.” Recruit for open positions from multiple sources. Avoid “targeting” only employees of a competitor. Advertise positions, get applications and resumes, interview and conduct salary negotiations directly with individual applicants. Document all of these steps.
5. Announce the news. California law permits former employees of a company to announce that they are no longer with their former company and are with a new place of business. In some circumstances, however, an employee may be prohibited from soliciting customers of his former employer. Announcements of employee acquisitions should bear this legal distinction in mind and should be reviewed by legal counsel prior to making such arrangements.
Portions of this article first appeared in the January/February 2009 issue of Sacramento Lawyer, the bimonthly publication of the Sacramento County Bar Association. Weintraub Genshlea Chediak thanks Sacramento Lawyer for the right to publish the article, in its entirety, on our website. The article is the copyrighted property of the Sacramento County Bar Association.