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Hiring A Competitor’s Employee Requires Due Diligence

On Behalf of | Mar 14, 2018 | Employment Law

When considering a new hire from a competitor, the company should learn what, if any, restrictions that potential new hire may have on employment.  Those restrictions could be in the form of an agreement that contains provisions related to: confidentiality; non-solicitation of customers and employees; and a non-compete in the industry for a period of time in a geographical area.

Courts generally enforce confidentiality provisions as long what they define as confidential is truly confidential and not in the public domain.  Even if there is no such agreement, New Hampshire has a trade secret statute which prohibits the use or misappropriation of trade secrets. If the new hire reveals or uses the confidential information of her former employer for your company’s benefit that could result in your company and the former employee being sued for damages and an injunction.

Non-solicitation provisions are also sometimes called non-competition agreements, but they are narrower since they prohibit the employee from soliciting or accepting business from their former customers and soliciting or accepting fellow co-workers to work a competitor.  These non-solicitation provisions are generally enforceable related to co-workers and customers as long as that former employee had contact with those customers.  For example, a large company that has thousands of customers should not be able to win a claim that a salesperson who only had contact with a dozen customers is prohibited from working in the future at a competitor with the other customers she never had contact with while employed with her former company.   Courts generally will agree to enforce a contract term that prevents an employee for a period of time from contacting for a competitor the same customers that she was paid by the former employer to contact so the former employer can put a new face in front of that customer.  An employment agreement that prevents someone from competing in the industry may be difficult to enforce in court with few exceptions, such as a television personality prohibited from working for a competitive station for a reasonable time period.

For a company thinking about hiring its competitor’s employee, it should be aware of a legal claim of tortious interference with a contractual relationship that can be brought against it by the former employer.  On January 30, 2018, a New Hampshire Federal Court trial judge, in the case of HCC Specialty, Underwriters, Inc. v. John Woodbury, et al, analyzed what she believed the New Hampshire Supreme Court would consider as factors to show tortious interference with a contractual relationship.  The Court considered those factors as to whether the new employer: (i) capitalized on certain accounts or information held by the employee, but was protected by a restrictive covenant; (ii) encouraged the new employee to contact the customers of the former employer; or (iii) whether it acquiesced in or benefitted from the wrongs of the new employee.  In that case, the Court granted a preliminary injunction against the former employee and new employer for damages thereafter to be determined.  A case is often fought hardest in the preliminary injunction stage and, depending on the outcome of those cases, the parties then reach a settlement.

A company considering hiring a new employee from a competitor who has such a restrictive covenant risks litigation for tortious interference with a contractual relationship.  Furthermore, if the new employee is offering to take confidential information and provide it to your company, the question to ask yourself is: Do I want to hire a thief? She is willing to steal confidential information from her former employer and why should you believe she will not later steal from you? If the issue is instead a broad non-compete, I have on a variety of occasions represented both the new employer and/or the employee in litigation addressing the scope of a non-competition/non-solicitation agreement that goes beyond protecting legitimate confidential information.  Such claims can be defeated under the right facts and circumstances and merely because there is a threat of litigation depending on the circumstances, including the value of the employment candidate, it still might be worth hiring the candidate, or not firing her if already hired, and fighting the litigation.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].