It is crucial for employers to understand how to counter “Cease & Desist Letters,” which is another step that may be taken to minimize and mitigate the risk of litigation for hiring from a competitor. However, even before responding to one, the hiring employer to understand the reason(s) and motivation(s) behind the cease and desist letter.
Having concluded the discussion on how to counter cease and desist letters, we have moved this discussion forward by hammering on how to understand “Potential Claims from Former Employers,” which is another thing the hiring employer may have to consider to avoid, minimize, and/or mitigate the risk of litigation for hiring from a competitor.
Hiring from Competitors – Potential Claims from Former Employers
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 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.
The burdens of proof and elements under the applicable theories will be discussed in a later blog. However, it is crucial to understand that following the claims brought by former employers, hiring employers may be able to create a powerful defense by using a number of precautionary steps and demonstrating a number of things. This is because the question of whether a hiring employer actually benefited when the new hire engaged in unlawful conduct, whether the employer acted in good faith, and what the intent of the hiring employer largely predicates liability under these theories. Accordingly, as part of its defense, the hiring employer may show that:
- It followed due diligence to make sure that it did not wrongfully benefit when the new employee disclosed and/or used confidential information and/or trade secrets of the former employer.
- To ensure continued compliance with any post-employment restrictions imposed by the former employer, it continually monitored the conduct of the new employee.
- To make sure that the new hire did not inadvertently disclose and/or use confidential information and/or trade secrets of the former employer, it instituted and implemented internal protocols (e.g., ethical walls).
- It disapproved and discouraged the new hire from (1) improperly diverting the former employer’s business opportunities and (2) disclosing and/or using the former employer’s confidential information and/or trade secrets.
- It did not have forewarning or initial knowledge that by engaging the new hire, it would interfere with post-employment contractual restriction(s) from the former employer.
- To determine any pre-existing contractual restriction(s), it used due diligence during the pre-hire stage of the new hire’s induction process.
In Part VI of this series and our blog post titled “Hiring from Competitors – Creating Institutional Protections,” we will hammer on how to create institutional protections, which is another 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.