Employers who wish to hire from competitors should, as a best practice for avoiding, minimizing, and/or mitigating the risk of litigation for hiring from the competitor, enquire about post-employment restrictions and obtain written representations of the same. As a continuation of this discussion, it is also critical to understand the importance of “Seeking Full Disclosure from Candidates,” 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 – Seeking Full Disclosure from Candidates
Every hiring employer must make deliberate efforts to understand the potential legal obligations a potential candidate may have to their former employer as a way of avoiding and understanding the full scope of the risk of litigation that arises from a breach of restrictive covenants. Accordingly, the hiring employer should seek full disclosure from a potential candidate, including copies of any employment policies, incentive or stock compensation covenants, contracts, or other documents that may contain restrictive agreements regarding post-employment activities.
On the one hand, candidates must understand that they could lose the chance of being assisted by the hiring employers in defending claims arising from undisclosed covenants or, worse, suffer adverse consequences, such as termination of employment following their failure to provide full disclosure. They must also understand that providing full disclosure of existing post-employment restrictions would enable the hiring employer to amicably evaluate and determine (1) the likelihood of prevailing in the event of litigation, (2) whether the hiring is worth the risk, (3) what the potential risks of litigation will be, and (4) the extent of reach and scope of the covenants.
On the other hand, it is critical for hiring employers to have up-to-date information regarding how restrictive covenants are being enforced through the most recent legal developments of both state and federal laws. Such information would provide a clear picture and full closure of a potential candidate’s legal obligation(s) to their former employer. Recently, many jurisdictions have considered substantially restricting or entirely prohibiting the use of non-competing agreements, which points to a perpetual flux in the domain of restrictive covenant law.
For instance, while they have continued to investigate employers who, without a clearly demonstrated business need, use non-compete covenants and other restrictions, the attorneys general from Illinois and New York have been very aggressive in prohibiting employers from using agreements not to compete against lower-level workers. In fact, the enforcement of agreements not to compete against low-wage workers was recently banned in Illinois following the enactment of the Freedom to Work Act. Notably, other states, including Washington, Virginia, Rhode Island, Oregon, New Hampshire, Nevada, Massachusetts, Maryland, and Maine, have also passed statutes and Acts that prohibit the use of non-compete agreements based on income. Over time, the trend toward the limitation of the scope and spread and prohibition of non-competes is expected to expand exponentially.
In Part XI of this series and our blog post titled “Hiring from Competitors – Screening & Interviewing Candidates,” we will hammer on the importance of screening and interviewing employment candidates thoroughly as another crucial step a hiring employer should take 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, & Publisher.