Raiding A Competitor's Employees: Rewards Or Risks

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Raiding or stealing a competitor's employees may be viewed as an alternative to hiring and training employees - especially in view of the increasing pace of competition and the greater mobility of employees in moving from one job to another.

Potential Rewards
The potential rewards of raiding a competitor's employees may be perceived as minimizing start up time and costs. For example, there may be perceived savings in training time and costs. A competitor's employees may also be perceived as being able to bring valuable information about potential customers and/or technology.

At least two possible scenarios arise when a competitor's employees are raided. One is where an employee leaves and thereafter solicits employees from the old employer to join the new employer. A second is where, before and in preparation for leaving, an employee solicits other employees, all of whom then go to the new employer.

In general, California courts have ruled that one is generally free to solicit a competitor's employees. This stems from the fact that California courts view the interests of the employee's own mobility and betterment paramount to the competitive business interests of the employer. Also, California Business and Professions Code Section 16600 has specifically been interpreted to invalidate employment contracts which prohibit an employee from working for a competitor when the employment has terminated.

An important qualification, however, is that an employee's mobility and betterment is not recognized where the employee or the new employer has committed an illegal act accompanying the employment change. These illegal acts may be in the form of unfair competition, breach of fiduciary duty, and theft of trade secrets. More importantly, the limits of proper versus improper conduct in soliciting employees are not well marked.

Potential Risks
It is these types of illegal acts that create potential risks of litigation over raiding a competitor's employees. Of course, if litigation ensues, the perceived rewards from the raiding may become a nullity in view of the time and money spent in defending a lawsuit. The time and money may not only be in terms of attorneys but also employees needed to respond to discovery and interface with the attorneys.

An unfair competition claim may arise against the departing employee and the new employer. Unfair competition is broadly defined to include anything that can be called a business practice and that at the same time is forbidden by law. Given the breadth of unfair competition, an old employer may not be hard pressed to make such a claim.

Corporate officers and directors who participate in management and exercise discretionary authority breach their fiduciary duty to the old employer if they use their position of trust to further their private interests. For example, it may be a breach of fiduciary duty for one to engage in a consistent course of conduct designed to obtain for the new employer the old employer's employees whom the new employer cannot afford to employ and would find useful. Such conduct might include misleading the old employer into believing there was no danger that the departing employee would attempt to hire the old employer's personnel, and disclosing confidential information regarding salaries to the new employer to facilitate the solicitation of employees.

Against the departing employee and new employer, a theft of trade secret may be made. The alleged trade secret may include a formula, pattern, compilation, program, device, method, technique, or process. A trade secret claim can often be made where the departing employee has held a sales position which made the departing employee privy to customer information. Another situation is where the departing employee, who held an R&D position, was privy to confidential technology.

Conclusion
Whether the solicitation of a competitor's employees is within the scope of proper versus improper conduct cannot be simply answered. The answer is highly dependent upon the specific facts surrounding the solicitation. Therefore, careful planning before the actual solicitation can make the difference between success and litigation.

 

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