Why do companies have some employees sign noncompetition agreements and nonsolicitation agreements? Well, it’s simple. So they can protect their business, its goodwill, income, the business owners’ livelihood, and all of things that make the business valuable.
And why do businesses often hire employees that they know have these types of agreements with their former employers? Well? That’s simple also. Often times they want to capitalize on the information that the employee has about their competitor. Well, at least sometimes that is the case. But not always. But when it is, and when a business knowingly hires someone with a restrictive covenant with a competitor, sometimes that business can be sued also.
Typically the hiring company is sued for wrongfully interfering with the other company’s contract rights with its former employee. Not surprisingly, lawyers throw in other claims, including unfair trade practice and bad faith. The goal as the plaintiff is to get the hiring company to see some risk and ultimately settle the case. Because any lawyer that does this type of work knows that the hiring company is typically controlling things behind the scenes.
Ultimately, if you hire a competitor’s employee knowing that they have a restrictive covenant in their employment agreement, there is probably a 75% chance you will be sued. But, with that said, there’s also a good chance that the case against your business will not be that strong unless your company did something malicious, meaning something over and above just the fact that you hired this employee hoping to take advantage of his experience with your competitor. So even if you encouraged your new employee to solicit your competitor’s customers, you’re not going to have too much to worry about. But if, for example, you helped this employee steal documents or information from your competitor, that’s another story and you should definitely talk to a lawyer.
One recent Connecticut case illustrates the fact that simply hiring away a competitor’s employee, even if you know the employee signed a non-compete agreement with that company, is not enough for your business to be held liable. It’s called fair competition after all. Read that case HERE.
But, (there is always a “but” when a lawyer is talking, or writing, or sleeping…) if you hire a slew of employees at the same time, or close in time, from the same competitor, you could find yourself on the wrong end of a “raid” claim. If you feel like it, you can read about one of those cases we handled HERE.
At the end of the day, these cases are often resolved short of trial. But they become very expensive to litigate.
LESSON LEARNED: if you’re looking to hire somebody, especially someone in sales, or hi-level management, ask if they have a noncompetition or nonsolicitation agreement with the company they are leaving. Then take the time to seek out the advice of a trusted counsel. You’ll be glad you did.