Thinking About Hiring a Competitor?

May 17, 2017 Legal Industry News

Attorneys and law firms looking to either join or hire a competitor are at risk of being in violating conflicts rules, or facing litigation (trade secrets, non-compete agreements, and other post employment restrictive covenants). Although it is impossible to completely eliminate these risks, there are certainly factors to consider that can help reduce risks and be prepared to defend from any legal actions that may arise. Here’s what I advise companies that are considering hiring an attorney from another company:

Understand who you are hiring.

To accurately evaluate and reduce the risk of issues, you must know knowing exactly who you are hiring. This means that you should collect and verify the following information from a candidate:

• current job title

• full substantive and geographic scope of responsibilities

• exposure or knowledge trade secrets and other competitively valuable information

• significance of the candidate to key customer, company, or departmental relationships

Remember that although you should obtain this information directly from the candidate, you should not rely solely on a candidate’s representations. Make sure you independently verify information. If you understand your candidate’s old and new roles, you have a better idea of what you should do if a claim that the candidate is violating a restrictive covenant arises. This can also help you structure the candidate’s position and create the proper protocols to provide assurances against breach of those covenants. Keep in mind that there are certain issues that may arise if you search for your candidate’s social media pages.

Require full disclosure from potential candidates.

Insist that your candidate grant you full disclosure and copies of any employment contracts, compensation agreements, policies, or other documents that contain potential restrictions on your candidate’s post-employment activities. This provides you with an opportunity to understand a candidate’s potential legal obligations. Once disclosure of existing restrictive covenants is provided, you may evaluate the scope and breadth of the covenants, the potential risks, whether the hiring is worth the risk, and the likelihood of prevailing in the event of litigation. Emphasize that failing to disclose will result in adverse consequences (a refusal to assist the candidate in defending claims based on undisclosed covenants, for example, is pretty serious).

Understand how litigious the company/industry is.

Companies that see a lot of crossover and laterals from its competitors tend to be familiar with hiring customs. Although there is a general understanding that employees jump from employer to employer, or that employees take their personal clients with them when changing employers, the competitiveness of an industry (regarding client contacts and information) is a good indicator of how aggressive a competitor in the industry may seek to enforce post-employment restrictive covenants. You should not wrongfully benefit or participate in a new hire’s violation of valid restrictive covenants. Liability tends to rely on the hiring employer’s intent, good faith, and whether it actually benefited from the new hire’s unlawful conduct—which is more easy to prove the more precautionary steps you follow.

Obtain written agreements from the new hire.

If a candidate states that he or she is not subject to any written employment agreements or covenants, you should ask the candidate to warrant that they are not party to any agreement subjecting them to post-employment restrictions that would prohibit or limit their employment (you are hiring the candidate in good faith and without any knowledge of the restrictive covenants). In addition, you should also have the candidate sign an agreement not to use or disclose the former employer’s trade secrets or confidential information in the candidate’s new role. If the candidate is subject to potentially valid restrictive covenants, but is being hired in a capacity that does not implicate those covenants, then make sure that you specify the exact nature and scope of the candidate’s new position. This should be done in a way that is specific enough to show that the candidate’s employment does not conflict with any existing post-employment restrictions. This emphasizes that you do not expect nor tolerate violations of confidentiality agreements, and also demonstrates that you are acting in good faith and is not responsible for the candidate’s violation.

Understand that the candidate may need guidance. You should instruct the candidate to conduct his or her affairs honestly and ethically during the transition period. Advise the candidate that he or she should:

• Provide proper notice to the candidate’s current and past employers

• Refrain from doing any work for the hiring employer during the notice period

• Refrain from engaging in any activities that could be viewed as a conflict of interest

• Refrain from forwarding to the hiring employer, or to himself or herself, any materials that might be considered property of the former employer

• Refrain from delaying any sales or transactions or diverting business opportunities

Then, make sure that your communications with the candidate remain consistent with your instructions.

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