Waging War on Employee Raiding

Infotech and the Law James C. Fontana

James Fontana

Waging War on Employee Raiding

They're stealing my employees!" cried the department head of a major information technology firm.

That seems to be an increasingly common complaint in today's booming economy, and a potential danger for employers who invest fortunes in recruiting, training and retaining valuable employees only to see them jump ship before any of that investment pays off.

Competitors that solicit and hire these employees - an activity sometimes called raiding - are often teaming partners, subcontractors or other business alliance members that see attractive recruitment targets. In other cases, former employees call upon their ex-colleagues and solicit them to leave their companies.

Call it smart business or commercial desperation in a burgeoning job market; companies - especially information technology services firms - are more often looking to other companies for hard-to-find employees.

A company can protect itself from employee raiding. The most common method is to incorporate a clause in a teaming agreement, subcontract or other agreement that restricts both parties from hiring each other's employees. Some clauses go further to restrict even soliciting or recruiting employees either directly by approaching them and inducing them to leave, or indirectly through a third party (i.e., tipping off a headhunter).

The solicitation or hiring restrictions may last for the life of the agreement and for some years after it ends. The restrictions typically would not apply where the employee approaches the competitor looking for a job or independently answers an ad in the job classifieds. Yet the first defense to claims of breach of this clause is, "The employee came to us first." Whether that is true or not is a matter of proof.

There is one danger to using these types of clauses. Agreements between competitors not to raid each other's employees may be considered a violation of antitrust laws, where the parties have a dominant position in the affected industry. Therefore, the agreement may have some impact on industry competition as a whole. In most cases, however, such clauses will have a negligible effect on competition, and will be upheld by the courts.

Another protection method is to incorporate an anti-raiding clause in contracts with key employees. This type of covenant is more likely to be enforced by a court than by other non-compete restrictions. Such a clause would be in addition to a provision restricting the employee from using or releasing to others (especially new employers) any confidential information gained during employment.

Many employers have been successful in obtaining injunctive relief to restrain their former employees from soliciting current employees and doing so by misusing company confidential information. Employment agreements with strong confidentiality or employee raiding provisions were key factors in some of these cases.

In addition to suing a competitor or former employee, or both, for violating a restrictive hiring or confidentiality agreement, there are a number of other, potentially powerful legal weapons to protect against employee raiding.

For example, a competitor that breaches the clause or uses other improper means to solicit employees may be charged with tortious interference with the company's relationship with the employees or its customers. And since this alleged behavior potentially involves what the law recognizes as an "intentional tort," the violating party may be liable for punitive as well as compensatory damages.

A company also may sue a competitor for unfair competition where the competitor consciously raids the company and induces the resignation of key employees, thereby crippling the company's operations or causing other damage to its business.

Another possible cause of action, at least in Virginia, is for civil conspiracy. Virginia has enacted a business conspiracy law that allows for recovery of punitive damages. The typical basis for this type of action is one in which the competitor allegedly conspires with the former employee to unfairly induce current employees to leave the company.

The big concern of most companies, however, is to stop these acts of raiding before the employee resigns and joins the competitor. In such cases, the complaining company may be able to have a court issue an immediate injunction to prevent the person from being employed by the competitor, even before there is a trial on the matter.

In the end, using anti-raiding and confidentiality agreements won't do a company much good if they are not adequately enforced. One possible defense to an employee raiding lawsuit could be that the employer seeking to enforce the clause has a poor record of doing so in the past. Thus, protecting a company's valuable resources (i.e. its employees) includes keeping competitors from unfairly recruiting them.

James C. Fontana is vice president and corporate counsel of Wang Government Services Inc., McLean, Va. His e-mail address is james.fontana@wang.com

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