Key Considerations in Hiring an Employee Subject to a Non-Compete: Part II

As discussed in Part I of this blog series, some of the most qualified candidates for employment are often current or former employees of competitors in your industry. Non-compete agreements are helpful to employers who wish to control and limit the competitive activities that an employee may engage in after his or her employment ends. Once an employer has decided to offer employment to a current or former employee of a competitor, these are the most important considerations to make.

Consider Possible Protective Steps

If the employee is subject to an enforceable non-compete or non-solicitation provision, and if the position that the candidate has been hired for would require the candidate to breach the terms of that provision, there are steps to take to minimize litigation risk associated with the hire.

1. Restructuring the position so that its duties and responsibilities do not run afoul of any contractual restrictions. The terms of the job offer should be drafted in a way that the employee’s duties will not conflict with the non-compete. A good faith effort to define the duties will likely minimize legal exposure, and may even discourage the competitor from litigating.
2. Placing the employee essentially “on hold” by either placing him or her in a temporary position for the duration of the contract or paying a salary but not requiring him or her to perform any duties.
3. Asking the employee to request a waiver of any contractual restrictions from the former employer.

Respond to Any Cease and Desist Letters

Even if you do everything you can to ensure your recruitment efforts are above board, you might still receive a letter from the competitor, or the competitor’s counsel. This letter is usually sent in order to complain about the facts surrounding the employee’s departure or threatening legal action. In most of these situations, it is in your best interest to respond to all “cease and desist” letters you receive. The following are steps an employer can take to resolve the situation before litigation, even after receiving a “cease and desist” letter:

1. Use an appropriate tone. Resist the temptation to respond in a hostile and adversarial manner, even if the competitor’s allegations are unfounded.
2. Provide assurances. If the competitor alleges that the employee misused or misappropriated confidential information, you could guarantee the competitor that you have no interest in this information. You should also assure that this allegation has been examined and is unsupported.
3. Avoid legal debates. Do not legally debate over the enforceability of the restrictive covenants. If the competitor alleges that it has an enforceable covenant that you believe is unenforceable, you should focus on your commitment to free and fair competition.
4. Maintain an open dialogue.
5. Write for a judicial audience. Cease and desist letters and responses are often used as exhibits in resulting litigation.

Tortious Interference

Most states, including Florida, prohibit a third party from interfering with the contractual relationships between two other parties. This is known as “tortious interference” with a contract. If you interfere with the contractual relationship between the employee and the competitor without justification, your competitor may have a claim against you for tortious interference. To prove a claim for tortious interference, the aggrieved party must establish: (1) the existence of a business relationship not necessarily evidenced by an enforceable contract; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with that relationship by the defendant; and (4) damages as a result of the breach of the relationship. Linafelt v. Beverly Enterprises-Florida, 745 So. 2d 386, 389 (Fla. 1^st DCA 1999). Causation is established when one intentionally and improperly interferes with a business relationship between two other parties by “inducing or otherwise causing” one party to breach or sever the business relationship. Goussard v. Adia Servs., Inc., 723 So. 2d 182, 184 (Fla. 1998). Merely interviewing and speaking with a potential applicant is not sufficient to support a claim for tortious interference.

Your competitor must prove that you lacked justification for employing the employee in violation of his or her non-compete. Proving that you lacked justification requires evidence that your interference with the contractual relationship was improper. Courts evaluate whether your interference was improper based on: (1) the nature of your conduct; (2) your motive for interfering; (3) your competitor’s interests in its contract with its employee; (4) interests that you are pursuing; (5) the balancing of the interests in protecting your freedom to employ the employee and the contractual interests of your competitor; (6) how directly you interfered; and (7) the relations between the parties. See, e.g., id.

For example, you hire an applicant to fill a position, with little consideration to the applicant chosen being an employee of a competitor. Further, neither you nor the employee possesses any of the competitor’s trade secrets or other sensitive information. Despite your best efforts, the employee breaches the non-compete anyway. Your competitor will have a tough time proving that you lacked justification for hiring the employee.

There are some defenses to a tortious interference claim that an employer may wish to assert if the employer finds themselves in the throes of litigation. If the employer can prove that hiring the employee merely amounted to “fair competition,” then your competitor will not be able to prove that you lacked justification. Fair competition occurs when, despite knowledge of the non-compete between the employee and the competitor: (1) you do not employ wrongful means to procure the breach of the non-compete; (2) your action does not create or continue an unlawful restraint on trade; and (3) your purpose is, at least in part, to advance your interest in competing with the competitor. See, e.g., id. This defense is only available with respect to a claim brought by a competitor and applies only to agreements that are terminable at-will.

Thus, fair competition means that, if the employee answers an advertisement for an opening and is the best qualified employee without regard to his or her employment by the competitor, you may fairly compete with your competitor by hiring the employee to engage in your normal business activities. But, if you employ improper means or have an improper motive, such as obtaining trade secrets or unfairly obtaining your competitor’s customer accounts, you will most likely not be able to establish a fair competition defense.

Conclusion

Again, an employer’s most qualified candidate is often times a former employee of its competitor, and an employer should not be afraid to hire this candidate for fear of legal implications. Even though hiring a competitor’s former employee poses many risks, as long as you proactively take the steps suggested above, the rewards will most likely outweigh the risks.