Top Talent on the Move, No Social Distancing Required
Great businesses know that great opportunities come from every challenge, and the challenges from the global pandemic have been substantial. Employers are furloughing and laying off employees, and yet, other sectors of the economy are capitalizing on the uncertainty in the labor market. In fact, somewhat counter-intuitively, many companies are using this time to make big moves and hire top talent from the competition. Employees are also using this unconventional moment to reconsider career paths and trajectories, and to shape where and how they want to work in the future. This crisis-turned-opportunity has put a spotlight on the risk to the things that matter most to a business: investments in confidential information, research and development, customer relationships, goodwill, and specialized training provided to employees. Businesses considering hiring top talent with high-level access to these assets should proceed with taking advantage of the opportunity. However, like everything else in the global pandemic, companies should do so carefully and safely, considering the following issues carefully in making their plans.
Assess All Access, All the Time.
There are many ways in which companies may protect intellectual property and business relationships, including restrictive covenants like non-competes and customer non-solicitation restrictions. These types of agreements are restraints on trade that are traditionally disfavored at law. Courts sitting in equity, however, have designed procedures and rules under which companies can enforce restrictive covenants or to protect trade secrets in court. Typically, this occurs through a fast-moving injunction proceeding. The net result may be that an employee is restricted from working for a new employer or soliciting their former customers for the period of the restriction, or until circumstances change.
Traditionally, the classic example is the departing sales employee: an employee has responsibility for a sales territory, and a non-compete restricts them from competing in that same sales territory for one year after the termination of their employment. The new employer may hire the employee, and, to ensure that the employee complies with their obligations, will assign the employee to a different sales territory for a year. Thus, the new employer avoids any issue with the restriction, but is able to hire a valuable employee for the long term. After the year passes, the employee will be permitted back into the sales territory, the former employer having been allowed to protect its investment in that territory for the year and establish a new sales representative there without any interference from its departed employee. A similar analysis is undertaken if there is any question about whether a departed employee is likely to disclose trade secrets or confidential information either in their job role, or because they have downloaded or take such information.
The world is not black and white, however, and the lines are no longer drawn so starkly. Roles and responsibilities within companies are no longer siloed to specific territories and specific business lines. Businesses see value in sharing information across teams, levels, and platforms. It is not as simple as removing someone from a sales territory or a department necessarily. As a result, when hiring from a competitor, it is important to assess the candidate’s job responsibilities and level of access to confidential information to avoid any risks that it might be disclosed in the new job position. Assessing former job roles and responsibilities through the interview process with human resources professionals trained to spot the issues can be a helpful and informative part of the process. In a competitive field, businesses have a general sense of how the competition operates and can assess, by comparison, the candidate’s access to confidential information. The way in which a business hires from competitors can also send a message of how the business intends to behave in the market. The Golden Rule applies here too: treat the competition the way you want the competition to treat you.
Is It Worth It? Let’s Try to Work It.
A business may identify potential risks of proceeding with the hire as a result of this assessment. As with every other business law strategy, the downside risk of litigation in such a situation should be balanced by the potential business upside. The risks of litigation are substantial, but may be worth it. Notably, the damages in these cases are not monetary. Rather, the risk is the time, cost, and expense of delaying a potential powerhouse executive from starting in a new position with distracting, intense, and expensive litigation.
Companies should carefully weigh these risks before proceeding, and craft a legal strategy in parallel with the business strategy to accomplish the business goal, whatever that may be. For example, it may be possible to change or adjust certain roles and responsibilities to comply with a noncompete or insulate trade secrets from potential disclosure. Companies may also have policies or written instructions to ensure employees comply with their continuing obligations. The dynamic of the competitors and the market also matters. It may be a market in which there is no confidential information and, therefore, little risk. It may be a situation in which a former employer is out for vengeance, and those circumstances affect the risk profile. Whatever the situation and risk, if the talent is worth it for the long-term, there is likely a companion legal strategy to work through these challenges.
If You Download It, the Forensic Experts Will Come.
Lawsuits can happen to good people, even after going through a thorough recruitment process and the most well-designed hiring plan. The abundance of digital information stored on servers, in the cloud, and especially on mobile phones is staggering. The places in which such digital information can be stored and the manner it can be transferred is seemingly endless. Right now, there are personal email accounts, cloud storage accounts, social media accounts, and removable media like thumb drives. But, the future is unwritten in this area. The data and the way in which it is stored and transferred changes by the moment.
There is no doubt, however, that this type of evidence leaves a digital footprint. As a result, there are digital forensic experts who examine and issue reports on devices like laptops, mobile devices, and removable storage devices. Those reports can provide detailed information concerning the user’s conduct. Sometimes forensic reports lead to a smoking gun, but sometimes it is a mere misunderstanding that looks suspicious from a forensic perspective, but can be easily explained. It is the latter that leads to trust issues and lawsuits and best to be avoided if possible.
Advising the candidate of what is expected in connection with their resignation and departure from their former employer can be helpful and mitigate these risks. The employee should be aware that they owe a fiduciary duty to their employer through the date of termination of employment. The former employee should not work on behalf of the new employer in any way before resigning. Similarly, it should be clearly explained that the employee should not bring any information from a former employer with them, and that they should check and ensure that they do not have any such information. With riskier hires, companies may want to undertake more stringent measures to ensure there are no issues with digital evidence, which can compromise the most well-constructed hiring plan.
It is possible and perhaps even preferable to capitalize on these uncertain times by hiring top talent and getting a leg up on the competition. Just do it safely.
“Top Talent on the Move, No Social Distancing Required,” by Leigh Ann Buziak was published in The Legal Intelligencer on October 26, 2020.
Reprinted with permission from the October 26, 2020, edition of The Legal Intelligencer © 2020 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.