If a court determines that a hiring employer either unfairly benefited when a new hire violated their post-employment restrictive covenants or participated in such a violation, then it could be liable under several legal theories. Accordingly, a hiring employer may face a number of causes of action that include (1) employee raiding, (2) unjust enrichment, (3) violation of trade secret statutes, (4) misappropriation of trade secrets, (5) unfair competition, (6) tortious interference with prospective economic advantage, and (7) tortious interference with contract.
As a continuation of our discussion, we now move this discussion forward by hammering on how to “Create Institutional Protections,” which is another thing the hiring employer may have to consider in an attempt to avoid, minimize, and/or mitigate the risk of litigation for hiring from a competitor.
Hiring from Competitors – Creating Institutional Protections
In addition to the steps and issues of consideration discussed in the past few blogs, hiring employers should consider guarding against potential inadvertent or intentional breaches by creating institutional protections, which may help to reduce the risk of restrictive covenant litigation. At times described as “ethical walls,” these institutional protections comprise an integral part of ensuring employee compliance and conduct in the workplace. As part of creating them, a hiring employer may:
- Assign the hire to a non-competitive department of the business, awaiting the expiration of a post-employment restriction.
- Prohibit the hire from engaging in business activities and matters that would make them to inevitably disclose trade secret(s) and/or use confidential information belonging to the former employer.
- Exclude the hire from meetings or pitches that involve prospects or clients of the business’s competitor and former employer.
- Prohibit the hire from engaging in business activities that the former employer and the business’s competitor would deem unfair competition.
- Take and implement measures that bar the candidate from business projects and undertakings that involve trade secrets deals, dealing with prospective clients, or handling confidential information that they might inevitably reveal, disclose, or use a former employer’s competitively valuable information.
- Exclude the hire from all communication forums, such as email lists, where such matters are discussed.
Nonetheless, hiring employers should understand that taking such measures and creating these institutional protections is no guarantee that a former employer would not take legal action. However, by demonstrating to a court that the hiring employer took reasonable measures, the same would provide a compelling defense if the former employer takes legal action and, accordingly, minimize risk and chances that the new hire will breach existing restrictive covenants.
In Part VIII of this series and our blog post titled “Hiring from Competitors – Ensuring Employee Left Without Incident,” we will hammer on how to determine that the former employee left their former employer without incident, which is another crucial thing a hiring employer should do to avoid, minimize, and/or mitigate the risk of litigation for hiring from a competitor.
In the meantime, stay tuned for more legal guidance, training, and education in other series in progress. In the interim, if there are any questions or comments, please let us know at the Contact Us page!
Always rising above the bar,
Isaac T.,
Legal Writer & Author.