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Hiring a Valuable New Employee, or Buying a Lawsuit? Simple Steps Help Avoid Being Dragged Into Claims Based on Hiring

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We’ve seen an increase in lawsuits against a company by another company based on hiring the other company's former employee. These arise when the employee agreed with the former employer not to engage in various activities. The employee may be restricted from competing, prohibited from soliciting the former employer's employees or customers, and subject to strict confidentiality provisions.

A company can take steps to minimize the risk that a hiring a new employee will bring about a lawsuit. Consider:

The employment application process should require that an applicant identify any employment related documents that have been signed with the previous employer. And the company should obtain copies of those documents. These range from documents when the person was initially hired, to documents such as severance agreements that were created when the person left the previous employer. These are the documents that will identify the risks. We’ve even seen some such documents that contain a confidentiality clause prohibiting their disclosure. Consider requiring the applicant to certify in writing that he or she is not aware of any restrictions from previous employers and acknowledging that if this certification is incorrect, the offer of employment may be withdrawn or the employment may be terminated.

Next, make sure that the hiring process is clean. An applicant should be informed, in writing, that he or she is not expected to bring anything from the previous employer and that the company doesn't want or need any proprietary information or any information at all. This includes, for example, downloading contacts or customer lists. Have the applicant sign a certification that he or she has complied with this request. The certification should cover all electronic devices: if that means the person must “wipe” a personal home computer or smartphone or tablet, so be it.

In developing a job description, make sure that it focuses on responsibilities that do not fall within the scope of any noncompetition covenant. Those covenants tend to be broadly worded, so take care to customize the job description. Consider customizing it with language that explicitly prohibits certain duties—duties that would otherwise spark the angry attention of the previous employer.

Clauses prohibiting solicitation of former coworkers may not be subject to restrictions like covenants against competition are in many states. Most of these clauses, however, are limited in time. If an employee was subject to a nonsolicitation clause, direct him or her in writing to limit conversations with former coworkers that could be misinterpreted as solicitation. Consider putting a question in the job application asking the applicant how he or she learned of an opening at your company. And don’t think these clauses can be avoided by having the new employee provide information to another of your employees, who would then make the solicitation. A nonsolicitation clause will be too broadly worded to permit that.

Clauses prohibiting solicitation of customers are thorny. Most are so broadly worded that they may permit an argument that they effectively operate as a covenant against competition. As discussed below, covenants against competition can be difficult to enforce. Another way to deal with prohibitions against soliciting customers:  consider excluding certain “hot” customers that you know will attract the unwelcome attention of the former employer.
  
Confidentiality clauses are in a lot of hiring documents. To figure out whether the scope of a confidentiality clause will hamper the new employee’s ability to do the job, the company will need advice on whether the information identified as “confidential” really is what the law identifies as a “protectable interest.” For example, in some industries a customer list will almost always be confidential (such as a physician’s patient list), whereas in others, it will take only a little bit of work, like checking the yellow pages, to create one’s own list (such as businesses that need linen services).

Finally, the seemingly ever-present covenant against competition. Every state treats these differently. There can be statutory restrictions, including who is subject to them, how long they may last, when they must be agreed to, how much territory they may cover. The company will want to review these to see whether they are enforceable. Generally courts are reluctant to enforce covenants not to compete unless they are narrow and truly protect sensitive confidential information. Find out whether the former employer is litigious in seeking to enforce these. That’s useful for two reasons:  First, if it is not, and it has allowed its workers to leave for competitors, you’ll be able to argue that the former employer failed to take reasonable efforts to protect its information. That may prevent enforcement. Second, if that former employer is litigious, go back to the steps you’ve taken to have a clean hiring process, examine them more closely, and get in touch with employment counsel for an assessment of the risks.

And by the way:  consider whether the company wants to impose its own covenants against competition or other restrictions. Are they really essential to the business, especially for jobs that do not involve high skills?  In California, for example, covenants against competition are illegal. Yet that state’s economy is not worse off from this. Providing a wholesome workplace to create loyal employees is as least as important as requiring written restrictions to be signed by the workforce.