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Dos and Don'ts of "Corporate Raiding"

Frequently, we read or hear about one company "raiding" another's key employees. Typically, corporate raiding of employees occurs where one company engages in the "piracy" of "stealing' away -- i.e., soliciting and hiring -- certain highly productive or successful employees from one of its competitors. Corporate raiding often involves high-stakes litigation where broad injunctive and monetary relief are sought, such as an injunction against hiring and soliciting employees of the "wronged" employer, soliciting the raided employer's customers and/or using the former employers' trade secrets, and of course claims for many dollars in compensatory and/or punitive damages. This article explores several basic questions about corporate raiding; (i) what is it; (ii) what measures can one take to try to avoid being raided: and (iii) how does a company hire one or more employees from a competitor and minimize liability for raiding?

What is raiding? In Canada there is no actual legal cause of action known as "raiding." Rather, raiding is a general term that encompasses numerous legal claims and different theories of relief depending upon the factual circumstances and creativity of the lawyers involved. Most often, raiding takes the form of claims such as: breach of the fiduciary duties of loyalty and/or confidentiality, tortious interference with contractual or business relations, unfair competition, breach of a written employment agreement or restrictive covenant limiting one's ability to be employed in the same industry, breach of written confidentiality agreement, or misappropriation of trade secrets.

What measures can one take to try to avoid being raided? While raiding can occur whether or not employees are bound by written agreements with their employer, the presence of such agreements -- if enforceable -- are probably an employer's best protection against having its key employees raided. Such written agreements can include: (i) a promise to be employed for a fixed time period; (ii) a restrictive covenant limiting the employee's ability to work elsewhere and to compete against their former employer and (iii) a confidentiality agreement which prohibits the employee's use and disclosure of confidential, proprietary trade secret information and materials at a future place of employment. Of course to be enforceable, a restrictive covenant limiting one's ability to be employed must be both reasonable in the duration and geographic scope of the restriction, necessary to protect the employer's "legitimate interests" (e.g., trade secrets), not harmful to the general public and not be "unreasonably burdensome" to the employee's right to earn a living. While no agreement can ever be an iron-clad protection against raiding, the existence of any or all of the foregoing types of agreements (if enforceable) can serve as a deterrent to both the employee and your competitor to help prevent such personnel piracy. If raiding occurs nonetheless, existence of one or more of these employment-related agreements can also significantly strengthen one's litigation position by providing a court with a clear contractual obligation that was allegedly violated as opposed to a more amorphous common law fiduciary duty. Where a raided employee or group of employees take proprietary and/or confidential materials, courts are much more inclined to enforce employment agreements restricting the raided employee's ability to "jump ship" to a competitor.

Of course the absence of any agreement with one's employees does not give a competitor carte blanche to raid your key employees. The common law imposes on all employees the fiduciary duties of loyalty and confidentiality to one's employer obligating one not to compete with their employer while still employed and prohibiting them from disclosing or using their employer's confidential materials to its detriment. While certain cases have found that an employee can take certain steps to "prepare to compete" even while still employed by his old employer (such as forming or purchasing a competing business), such measures must not be contrary to the overriding duty of loyalty to one's employer. For example, soliciting customers for his soon-to-be new employer or conspiring to cause key fellow employees to also leave the company have been found to go "over the line" of how far an employee at will (subject to no written agreement with his/her employer) can go without violating their common law fiduciary duty of loyalty.

How does one hire one or more employees from a competitor and still minimize liability for raiding?
While the answer to this question is obviously fact-intensive and varies with the circumstances, here's a list of some do's and don't's to consider before you hire a key employee or group of employees from your competitor. Generally, these steps should be taken before agreeing to hire the key employee from your competitor and not as after-the-fact ploys to make the "record" look better, which will inevitably backfire in a litigation when the truth surfaces:

• Do advertise for the position you seek to fill in a manner customary to your industry and interview candidates from several companies before hiring anyone.
• Do ask the employee you seek to hire if they signed any agreements with their current employer. If they did, have your counsel carefully review them to determine their likely enforceability and to help you avoid running afoul of any legally binding provisions.
• Don't allow the new employee to bring anything from his old employer, especially anything which could be considered proprietary, confidential or a trade secret by the former employer (e.g., customer lists, computer printouts, programs or files, rolodexes, manuals). You could even have your new employees confirm in writing that they have brought no such material with them.
• Do have a written policy which you enforce prohibiting your employees from disclosing or using any proprietary, confidential or trade secret material they acquired from a past employer.
• Don't encourage your soon-to-be new employee to lie to his old employer when asked where he is going to be next employed. Such deception -- even if the employee is doing nothing else wrong -- can taint the employee's s conduct and help tilt the equities in any subsequent litigation against him/her and your company as the would-be raider.
• Don't have the employee you intend to hire from your competitor solicit fellow employees while still working for the old employer or ideally even after he joins your company. I f hiring several employees from the same company is critical to your legitimate corporate hiring needs (and not simply reflective of a desire to injure your competitor), try to avoid hiring the other employees all at the same time.
• Don't allow your soon-to-be new employees to solicitor customers for you or act in any way to further your business while they are still employed at their old employer.
• Do make sure that your soon-to-be new employee still does all of his work obligations scrupulously and in the same manner as before for his old employer after he has accepted a position with your company, but before his termination with his old company.

The foregoing comments are of a general nature, and are not intended nor should they be used as a substitute for legal advice or opinions which can be rendered only when related to specific fact situations.

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