It’s no secret that the way we work has changed significantly over the past decade. A whopping 60% of millennials (dubbed the “job-hopping generation”) are “open to a new job opportunity” according to Gallup; and, Deloitte found that nearly 40% fully expect to leave their current job within two years. Forbes has predicted the “war for talent” will continue to “heat up” in response to the rising issue of employee turnover. You may appreciate the easily wooed workforce if you’re looking to hire, but there are some risks you should know and guard against before you go engaging in battle for a competitor’s star developer. Keep reading.
The star developer’s current employer could sue you for encouraging or assisting the employee to breach an existing contract or fiduciary duty.
If the employee you’d like to hire has an existing employment agreement with another employer, he or she may be bound by non-compete or non-solicitation restrictions. Assuming the restrictions are reasonable and enforceable, your company can get sued for encouraging or assisting the employee to breach their contract. The legal claim is a tort (tortious interference with contract), so the other employer could be awarded significant damages if the claim is successful.
Even if the employee doesn’t have a formal contract with non-compete restrictions, the other employer could still sue you for inducing the employee to breach a fiduciary duty. This could be applicable in a scenario where the employee was an officer or director of the former employer and started taking significant steps to send customers to you before officially resigning, for example.
The star developer’s current employer could sue you based on the employee’s misappropriation of trade secrets or other confidential information.
The Defend Trade Secrets Act (DTSA) provides a private cause of action against anyone who misappropriates trade secrets that are related to a product or service used in, or intended for use in, interstate or foreign commerce. That means a DTSA claim could be based on the employee’s misuse of the former employer’s existing products or services, or even products or services intended to be developed and sold by the former employer in the future.
The DTSA defines “trade secret” to include “all forms and types of financial, business, scientific, technical, economic, or engineering information . . . whether tangible or intangible, [and whether it is stored or compiled electronically or otherwise] if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” 18 U.S.C. § 1839(3).
That’s a broad definition.
Even if your company didn’t play an active role in acquiring the trade secret information, the former employer will likely drag your company into the lawsuit for legal (and business) reasons that are beyond the scope of this post. The DTSA allows for an injunction (in other words, the court can put the trade secrets on lockdown) and very generous monetary damages, including double the money and attorneys’ fees. The DTSA supplements state law, so the competitor could bring similar claims based on state law as well.
Hiring a new employee is costly in and of itself, and the last thing you want to do while trying to train your new hire is defend a lawsuit. Although you can never completely eliminate the risks, there are steps you can take to avoid exposing your company to liability for hiring from a competitor. Thinking about hiring from a competitor? We’d love to help you work through the process!
*This blog provides general information for educational purposes only. It is not intended to constitute specific legal advice and does not create an attorney-client relationship.*