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Bay Area Business Lawyer Says “Ask These Five Questions Before Hiring Key Employees”

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Hiring a key employee is an important event for any business. Finding the right “fit” for the job – an individual with specialized skills, leadership ability, contacts and proven track record who is culturally compatible – is no small task. Oftentimes the most desirable candidates are employed by competitors, who understandably want to ensure that their proprietary information, customers, and employees do not also leave with a departing employee. Under these circumstances, it is essential to determine whether or not a candidate for a key job in your business is subject to legal restraints imposed by former employers. But once a qualified candidate is identified, the effort to recruit – putting together a compelling package of opportunity, salary, challenge, and responsibility – can overshadow the practical considerations of understanding the extent to which a candidate’s current or former employers have legal rights that could limit or prevent the new hire from performing the job you seek to fill. If a new hire’s former employer brings suit, your company will almost certainly incur significant costs and your new employee will, at best, be distracted from focusing on the new job, if not be enjoined from working for your business altogether. Should this occur, what seemed like the perfect candidate may quickly become a significant liability. Before hiring any key employee you should ask the following five questions:

1. Is the candidate subject to contractual limitations? Employees are frequently required to sign non-competition, non-solicitation, or nondisclosure agreements. Prospective employers should therefore require candidates for key positions to provide copies of any documents they have signed or otherwise agreed to that could limit their ability to perform the job they are applying for. Sophisticated search firms should be able to provide some guidance as to which companies typically require their employees to enter into such agreements.

2. Do prior employment-related contracts limit a candidate’s ability to perform the job? Experienced human resources personnel are generally capable of assessing whether a candidate is subject to confidentiality and non-solicitation limitations similar to those imposed by the hiring company. It may be necessary to obtain the advice of an attorney, however, particularly when a candidate has been employed in a different state. For example, California courts do not recognize the enforceability of non-competition agreements, but other states do, and untangling choice-of-law questions should almost alwsy be accomplished by an attorney. A note on employee records:  Most states, including California, require employers to provide former employees with a copy of their personnel files. When an employee leaves a job, she should as a matter of course always obtain a copy of her personnel file. But a currently employed candidate almost always wants to keep her job search confidential, which means most currently employed candidates will not have a complete set of all the employment-related agreements to provide to a prospective employer. Attorneys and job placement professionals should therefore encourage their clients to maintain a file of copies of all employment-related agreements, so that future employers can easily determine what limitations might apply when they decide to change jobs

3. Are the members of your recruiting team able to solicit their former colleagues? When a current employee recommends a colleague from a former employer, determine whether any non-solicitation limitations might apply. If your current employee is subject to viable non-solicitation obligations, ensure that he or she is not involved in the recruitment of any former colleagues.

4. Does the candidate know not to bring former employers’ confidential and proprietary information with them to the new job? At each stage of the recruiting process, be sure to inform the candidate that he or she cannot disclose or bring any confidential or protected materials or information to your company. Hiring companies must make clear that they expect new hires to abide by the terms of prior employment-related agreements. Employers should also caution new hires not to discuss any of a former employer’s confidential or proprietary information. Obtain a written acknowledgment and certification from new hires to demonstrate that you have made these efforts to avoid tacit or inadvertent misappropriation of competitors’ proprietary information and trade secrets.

5. Has the candidate created evidence that points to misappropriation? Advise job candidates that no e-mails, regardless of the content or subject, should be sent to or from the former employer’s e-mail account after a job offer is made. Employers often review a departing employee’s past computer activities, including recently accessed files and e-mail activity. Advise new hires that files should only be removed or copied from their former employer’s system with the former employer’s express consent, preferably by the former employer’s own IT personnel.

Even the most diligent company may face litigation when it hires a key employee from a competitor. To minimize this possibility, it is generally a good practice to contact the former employer once a candidate has accepted an offer of employment and attempt to discuss how your new hire’s former employment relates to the new job. If the former employer threatens litigation, you are well-advised to attempt to negotiate a settlement before a lawsuit is filed. Depending on the circumstances, this might include an agreement to limit the new employee’s responsibilities, pay for a release from prior agreements, or pay royalties for certain customers or clients who follow the employee to her new job. The basis for any such settlement should be the estimated cost of litigation and the type of judgment or order the court is likely to issue if the dispute is litigated.

In today’s world of frequent job changes, it is inevitable that business competitors will compete as fiercely for talent as customers and clients. In those industries where proprietary information and trade secrets are a business’ most significant assets, it is often best simply to treat your competitors’ trade secrets as you would want your competitors to treat your trade secrets. After all, the position opened in your competitor’s business by the hiring of your new employee may soon be filled by one of your current key employees.

San Francisco business lawyers at Judd Law Group, provide legal advice on trade secrets, hiring key employees, or responding to trade secrets lawsuit, or any other business law issues.

Jeffrey M. Judd

Judd Law Group

222 Sutter Street, Suite 600

San Francisco, CA 94118

415.597.5500

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