If you’re an employer in an industry where non-compete agreements are common, perhaps you’ve been faced with the following scenario: You offer a sales position to a candidate who tells you she doesn’t think she has a non-compete with her employer, which is a competitor of yours. Once she’s onboard at your company, she begins soliciting her former employer’s clients. Within a matter of days, both you and your new hire get a cease and desist letter from your new hire’s former employer. The letter encloses a non-compete agreement that your new hire, in fact, signed with the former employer several years ago. The agreement prohibits, for one year after her termination, the very activity you hired her to perform.
What are your options at this point? Assuming the restrictions are enforceable, you could keep your new hire in the same role and expect that she (and maybe you) will be sued; you could staff your new hire in a non-competing position you had not anticipated for the next year; or you could terminate her. No matter what decision you make, the new hire probably just became much less useful to your organization and much more costly. What could you have done differently? Here are some pointers for any employer to avoid this same type of pitfall in a competitive hire situation:
• Ask, ask and ask again. If non-competes are common in your industry, ask your job candidates more than once if they might have signed one. Oftentimes candidates forget that they signed non-competes. This is especially the case if a candidate has worked for her employer for several years and signed the agreement when she was hired initially. Also remind your candidate that non-competes are often tied to stock rewards or other bonuses, even if they aren’t present in an employment agreement.
Other times, your candidate knows that she signed an agreement with a non-compete clause. Yet, she does not have a copy of the agreement and does not want to ask her HR department for a copy because it will be a red flag that she is considering a new job. In that case, ask the candidate if she can find an unsigned copy of the agreement that likely contains the same or similar restrictions. Review it and consider the potential impact any enforceable provisions might have on your hiring and staffing decisions.
Job candidates often mistakenly think that the only agreements they are bound to are agreements with their most recent employer. Remind them that they need to provide you with all agreements that might still be in effect. For example, if they have only worked for their current employer for six months, chances are that they might have an agreement with the previous employer that is also in play.
• Give Your Job Candidate Fair Warning. If your candidate tells you she doesn’t have an agreement with her employer, advise her that any offer you give her could be rescinded should a non-compete agreement surface in the future. If your candidate cannot get a signed copy of her agreement until she gives her employer notice, inform her that her offer will become “firm” only after you determine that there are no additional (or more significant) hurdles to hiring her.
• Put it in Writing. Once she’s onboard, have your new employee sign an acknowledgement letter or an employment agreement informing her that your company has no interest in acquiring a ny proprietary information belonging to her former employer. Further advise that you expect her to abide by any lawful agreement she may have entered into with her former employer and it is her responsibility to make sure she complies with any ongoing obligations to the former employer. Finally, consider a provision that warns the new hire that you will not necessarily defend or indemnify her should any action be brought against her by her former employer for violation of a restrictive covenant agreement.
Employers looking to hire talented employees in a competitive landscape are often frustrated by the non-competes their job candidates are bound by. Yet, it’s best to know what those limitations are ahead of time so you can make fully informed decisions that protect your company. If you proceed otherwise, you will likely find that ignorance isn’t always bliss.