Employers are always on the lookout for new talent. At times, the best talent may be working for a competitor, and employers are often tempted to hire top managers and salespeople even if there are some risks. Likewise, employees are open to changing jobs if they are offered higher compensation and other incentives.
In many circumstances there is nothing wrong with one company hiring sales executives, managers, and individuals with special expertise from another company because of the record of those individuals, their abilities, their connections, and their know how. However, employers must be cautious that they do not hire away an individual who either is subject to restrictions or is overzealous in taking information from his former company when he departs. The hiring company should follow the following procedures to minimize risks.
Applicants for employment should be asked whether they are subject to non competition agreements, non solicitation agreements, or confidentiality agreements. If the candidate is subject to restrictive covenants, then the specific provisions should be reviewed to determine whether they are enforceable, the nature of the restriction, and the length of the restriction. If a candidate is subject to an enforceable non competition provision, the hiring employer could find itself hiring an employee whose continuing employment could be enjoined.
Similarly, if the hiring employer is hiring an individual who is subject to a non solicitation agreement, then it will want to be sure that the applicant understands that he must abide by the non solicitation provision and not solicit customers, co workers, or others who may be subject to the non solicitation restriction.
If the candidate is subject to a non disclosure agreement, then the hiring employer should take the following careful steps to make sure that the new employee does not violate those confidentiality and non disclosure restrictions.
• The individual should not take any trade secret or confidential information belonging to the former employer, particularly as it relates to customer information or sensitive financial or business information.
• The individual should be reminded that he is not entitled to take trade secret information and customer contact information, including information stored on an electronic device.
• The safest course of action for an individual who is leaving a company who is subject to a non-disclosure agreement is often to leave behind not only all records, whether in hard copy or stored electronically, but also laptops, cell phones, daytimer records, calendars, business cards, and other documents.
Salespersons and other management who leave one employer and go to another often believe that they have some right to information that they played a role in developing, such as customer lists and prospects lists or business information regarding methods of marketing, manufacturing, or strategies. The fact that the individuals played a significant role in development of business information does not mean that they are entitled to take it with them, use it, or disclose it. To the contrary, the greater their involvement, the higher the risk that they will be sued if they disclose the information. The prior employer paid for the employee’s time and work and as a consequence information the employee developed in the scope of his employment belongs to the prior employer.
Employees who leave one employer and go to work for another employer may be entitled to make an announcement of their new employment in the form of an advertisement in a publication (sometimes referred to as a “tombstone” announcement). In some circumstances employees also notify former customers that they have left the former employer and are now working for a different company. The latter form of announcement (often telephone calls) is much riskier than a published announcement because even if it is a neutral statement that the employee has changed jobs, it is subject to the claim that it is a solicitation.
Because individuals who are being recruited and offered higher compensation packages want to accept the new position, they may not be as diligent as they should be in researching and/or obtaining copies of agreements which they executed and informing the new employer of the existence of those agreements that may contain restrictive covenants. What may make them talented as salespersons may also blind them to the risks that they are taking by not carefully reviewing possible restrictions and by not carefully leaving behind all documents and information.
A hiring employer should obtain a written assurance from the individual that it is hiring that the individual is not bound by any agreements or other documents containing restrictive covenants. Some employers go one step further and require the employee being hired to warrant that they are not bound by any restrictive covenants or to indemnify the hiring company in the event that it proves that they are subject to restrictive covenants and later sued.
Individuals who are leaving one position and going to work for another employer also may have had conversations with one or more managers of the first employer which purport to relieve the employee from restrictive covenants. Typically, however, most agreements provide that the agreement containing the restrictive covenants is the controlling document and cannot be modified or revised unless that modification or revision is in writing by an authorized person.
In summary, in many cases the best pool of talented salespersons, marketers, or managers may be working for competitors.
So long as there is not a non-competition agreement in place, persons can leave one employer and go to work for a competitor, but both the individual who is changing jobs and the hiring company need to be cautious that the individuals who are changing positions are mindful of restrictions which may bind them,and future employers that are hiring need to be careful that they do not hire somebody who later presents problems to the hiring company, sometimes in the form of costly litigation.
Richard Hunt is an attorney with Barran Liebman LLP. He has more than 30 years of experience representing employers and executives in matters relating to non-competition and non-solicitation agreements, confidentiality obligations and trade secrets, and litigation between employers and their former employees. Contact him at 503-276-2149 or rhunt@barran.com.
