Post-employment restrictive covenant agreements are a fact of life in the workplace. Companies invest substantial time and money developing their most important asset – their employees. Of necessity, these employees are entrusted with sensitive business information and client relationships. Inevitably, however, valued employees will leave and, in many cases will go to work for a competitor.
Forward-thinking employers understand this reality and take steps to protect their businesses, including by requiring employees to sign confidentiality and non-solicitation agreements. The hiring company is then faced with the challenge of how to utilize the new employee’s skills and industry knowledge without running afoul of these limitations.
The good news is that with appropriate planning and safeguards, each of the parties can accomplish their business goals while honoring the employee’s obligations to his or her previous employer.
In the best of circumstances, there are risks associated with hiring a competitor’s employee. First, whether or not a written agreement exists, most states afford some measure of legal protection to employers’ trade secrets and other intellectual property. When the new employee has signed a restrictive covenant agreement with his or her former employer, the stakes are even higher. If the employee misappropriates valuable information or violates other post-employment obligations, a lawsuit is likely. Potential claims may include violation of state trade secrets laws, conversion, unfair competition, breach of contract and tortious interference.
Litigation is time-consuming, distracting and expensive. A temporary restraining order that keeps the employee on the sidelines may frustrate the entire purpose of the new hire. Adverse publicity can tarnish reputations and discourage clients from doing business with the new employer for fear of becoming embroiled in the dispute. And, a company whose employees are known to have breached their duties to former employers may find it more difficult to enforce its own rights.
Litigation avoidance should begin during the interview phase. Before making an offer, an employer should fully explore any potential limitations on a prospective new hire’s ability to do the job. If possible, the employer should ask for a copy of any relevant agreement, so that it can make an independent determination whether the prospect can accept employment without violating any duties to a previous employer. The offer letter should emphasize that the new hire is not to bring any property or confidential information of any previous employer, and that he or she must comply with any applicable post-employment obligations. If the employee takes nothing from the previous employer, it is far easier to prove compliance with the previous employer’s nondisclosure requirements.
If the new hire is prohibited from soliciting the former employer’s clients, he or she should be instructed in writing to comply with the spirit and letter of the rules. While the employee may worry that clients will be unable to locate him or her at the new job, this is rarely the case. The best solution is to reach agreement with the former employer on a joint announcement of the departure, and a script to be used should clients call and request the employee’s contact information. Other options include an announcement on the new employer’s website, emails or letters to the new employer’s existing client base, and announcements on the employee’s LinkedIn, Facebook, or other Internet profiles.
It is rarely advisable for the employee to contact clients directly, “just to let them know where I’m going.” Such contacts are almost always viewed as solicitations. If acceptance of business is permitted (without any solicitation), the client’s request to the employee at his new employer should be in writing, making clear that contact was initiated by the client and not the employee.
The new hire may also be subject to an employee non-recruitment covenant. If so, the new hire should be instructed not to contact former co-workers about prospective employment and not to participate in interviews, recruiting dinners or other similar events. If former co-workers contact him or her, the employee should refer them to the new firm’s hiring manager. If the new employer also hires its new hire’s co-worker, there will inevitably be questions. When the questions arise, the evidence must unequivocally establish that the employee had no role in the co-worker’s recruitment.
Post-employment nondisclosure and nonsolicitation agreements are here to stay, but they need not prevent a company from hiring workers with relevant industry experience. With the proper precautions including pre-hire analysis of the relevant restrictions, written instructions regarding the new company’s expectations and careful documentation of the employee’s compliance efforts, the new employer may properly benefit from the employee’s skills and business knowledge without violating the former employer’s legal and contractual rights.