Minimizing Risk When Hiring a Competitor’s Executive

By on October 14, 2012

October/November 2012

Jon Parritz, Maslon Edelman Borman & 
Brand LLP

Hiring a competitor’s employees entails risks that must be managed, particularly when the employees are executives. Contractual arrangements between a company and its executives often include limits on the ability of the executive to work for a competitor following termination, and forbid an executive from using or disclosing confidential information or helping to recruit former colleagues.

Most states enforce contracts with reasonable restrictions on an executive’s freedom to work for a competitor or to solicit former colleagues. State trade secret laws also prohibit an executive and the new employer from using or disclosing valuable proprietary non-public information belonging to a competitor.

Companies should ensure their employees who are trying to recruit former colleagues from their former employer are not contractually barred from doing so. If they are, the author says, then by permitting new hires to steer their former colleagues to the firm, companies can be held responsible for wrongfully interfering with the former employer’s contractual rights.

The author advises no communication with a prospective hire during regular working hours. Employees usually are prohibited from using an employer’s email, telephone and other services for personal use, which would includ seeking employment elsewhere. If a new hire is subject to valid non-compete obligations, consider “walling off” this person from meetings at which prohibited accounts or products are discussed. Make sure that the hire’s evaluations and compensation are not structured to reward or encourage violations of any non-competition, confidentiality or trade secret protection obligations.

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