Poaching employees can net big legal trouble

Businessman and his team. Photo by Getty Images

It’s relatively common in highly competitive industries such as tech or financial services, but “poaching” employees from a competitor could get you more than you bargained for. If employers aren’t conscientious about it, snagging that high-potential talent might lead to a high-priced lawsuit. 

There are plenty of examples; Apple, for one, is embroiled in a high-profile lawsuit in the United States after being accused of poaching top engineers from electric-car battery maker A123 Systems and Tesla. 

Poaching is a practice that’s gone on for decades, said Walter Stasyshyn, a Toronto employment lawyer — but the rationale has changed as technology and in-demand skills have changed. 

“What you find is there are employers who need skill sets (from) individuals who may be out in the marketplace… employment has very little to do with the position the person might hold in a company, but rather the skill sets they might have,” he said. 

That’s a relatively innocent reason for poaching that doesn’t usually present much difficulty, said Stasyshyn. 

“The difficulty is where the employers are poaching from companies that are maybe competitors or similar-type companies. We’re finding a lot of this type of thing, particularly in the tech field, because the need for highly skilled individuals is quite significant,” he said. “As we can see with tech wars going on out there, each company has a vested interested in protecting its proprietary interests. And that could be intellectual property, it could be trade secrets, it could be customer lists, it could be some of their other employees.” 

Poaching doesn’t have to come with legal headaches, said Hendrik Nieuwland, a partner at Shields O’Donnell MacKillop in Toronto.

“Generally speaking, it’s not illegal. It’s perfectly lawful in most circumstances to recruit an employee and say, ‘We want you to come work for us.’”

However, there are circumstances where poaching can be unlawful or open an organization up to legal action, he said. 

Legal risks

One such instance is when the  person doing the poaching is a former employee of the employer he’s poaching people from, said Nieuwland. 

“Where this typically happens is if an employee leaves and joins another firm, and they worked with good people at their former employer, sometimes they’ll go and try to recruit those employees to the new shop. That’s very typical. It’s lawful unless the person doing the recruiting has a restrictive covenant agreement which says that they can’t solicit employees for a period of time.”

Poaching can also be problematic legally when the person doing the poaching is a fiduciary of the former employer, said Nieuwland. 

“For example, when you have really senior employees who depart or leave — often this happens in the financial services industry — and because these are very senior-level people who have responsibilities for directing the business of their former employer, they may have fiduciary obligations to their former employer. So that’s a matter of common law — it’s not a contractual obligation,” he said. “One of those (common law) obligations on fiduciaries is not to solicit their co-workers to leave and come to a new place of employment for a reasonable period of time.”

Legal risks may also arise if the employee has access to valuable assets such as confidential information, customer or client lists, intellectual property or trade secrets, said Stasyshyn. 

“A lot of the inherent value of a company in the marketplace is based on that, so what everyone is trying to do is to protect those interests.” 

If poaching is done with the intent to access that information, the courts may be inclined to intervene, he said. 

“If it is to gain access to a competitor’s IP or trade secrets, customer list, employees, then to that extent the courts will intervene depending on how egregious it is, and depending on the level or status of the employee within the company, their access to that information,” said Stasyshyn.

“The issue is really about the protection of proprietary interests versus the reluctance of the legal or judiciary system to enforce non-competition clauses.”

Reasonable notice

Another downside? Poaching can impact the amount of reasonable notice the employee is entitled to, if the employer ever decides to terminate his employment, he said.

“If you induce an employee to come to you and he leaves his other place of employment, and you subsequently find out that that employee does not meet your standards and you wish to let that employee go, you’ve probably now created a much larger compensation package for severance. Because inducement is one of the grounds for a court determining what is the proper notice period and severance package.”

There are some relatively common tort claims associated with poaching, said Daniel Lublin, founding partner at Whitten Lublin in Toronto. 

“The first is intentional interference with economic relations or interfering with a contract. Basically, if you know that someone has a contract with somebody else and you poach them, you can be sued for inducing the breach of contract — if they’re breaching their contract... and those claims arise relatively often, I’m seeing that happen a lot in my practice.” 

Another common claim is around confidential information, he said. 

“The competitor that’s suing will say, ‘You took our employee and he had confidential information, and you’ve induced him to violate his confidentiality obligations, or his or her non-solicitation or non-compete obligations.’”

Protecting your interests

Employers should make sure the employee is not bound by a restrictive covenant with his prior employer, said Nieuwland. 

“(Also), if you’ve got a really senior person who comes over to your shop and wants to bring new people, you have to be cognizant that they may have fiduciary obligations that prevent them from doing that.”

It’s also critical to be clear with new recruits about not taking confidential information that belongs to their former employer, he said. 

“The number of cases I’ve had where that doesn’t happen is astounding, and it causes real significant problems for new employers.”

The best way for an employer to protect itself is to familiarize itself with the employee’s contract — and draft a good contract of its own, said Lublin. 

“You want to know if he has or she has an employment contract with the company they are coming from; you want to familiarize yourself with any terms that could be considered restrictive covenants; you want to address that if you’re an employer in your own contract with the person you’re poaching; you want to have clauses that say you are basically indemnifying or protecting yourself in the event there are any claims.”

But there’s no perfect, bulletproof solution and there are grey areas, said Stasyshyn. Employees naturally take knowledge with them when they migrate from one company to another, and there’s no way to entirely stop that. 

“No matter how many contracts you have, the fact of the matter is the employee has that knowledge. You can’t extract it from them, you can’t give them memory loss. They know those things and it is naive to think that in some manner or fashion they’re not going to use that information with the new employer,” he said.

“Even when you have agreements, however well-detailed they are, you still can’t stop somebody moving from one company to another and taking with them information... that’s why the area is so rife with litigation — because everybody’s trying to find what you can do and what you can get away with, and what you can’t.”

This article originally appeared on HRReporter.com
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