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Hiring Your Competitors’ Employees? 8 Things to Know About Non-Compete Clauses

Navigating non-compete clauses when hiring your competitors' ex-employees can be a complex process. To help you understand the intricacies, we've gathered insights from eight industry professionals, including founders, CEOs, and legal experts. From understanding the implications and seeking legal advice to consulting employment law experts, these leaders share their top tips on handling non-compete clauses.

  • Understand the Implications and Seek Legal Advice

  • Know Jurisdiction-Specific Laws

  • Exercise Caution and Consult Legal Counsel

  • Comprehend Individual Non-Compete Agreements

  • Assess the Scope and Duration of Clauses

  • Understand Enforceability Factors

  • Mitigate Risks and Liabilities

  • Consult Employment Law Experts

Understand the Implications and Seek Legal Advice

As a CEO, it's crucial to understand the implications of non-compete clauses when hiring competitors' ex-employees.

One key aspect to consider is the enforceability of the non-compete agreement, which varies across jurisdictions. In certain states, non-compete clauses may not hold legal weight, while in others, they are strictly enforced.

Being aware of the enforceability can help determine the potential risks and legal consequences involved in hiring such employees. If the non-compete agreement is deemed unenforceable, it provides a more favorable situation for bringing on the employee without facing legal repercussions.

It's advisable to consult with legal experts to navigate the complexities surrounding non-compete agreements and ensure compliance with relevant laws and regulations.

Luciano Colos, Founder and CEO, PitchGrade

Know Jurisdiction-Specific Laws

One aspect recruiters must know is that while non-compete clauses are commonly included in employment contracts, their enforceability can vary based on jurisdiction. It is crucial to understand that not all non-compete clauses will hold up in court, as their validity can be limited by factors such as duration, geographic scope, and reasonableness of restrictions.

Recruiters should familiarize themselves with the specific laws governing non-compete agreements in their jurisdiction and consult legal professionals to ensure compliance.

By understanding the legal framework, recruiters can make informed decisions when hiring employees from competing companies while minimizing the risk of potential legal challenges related to non-compete clauses.

Exercise Caution and Consult Legal Counsel

If you must hire a competitor’s employee for business reasons, tread carefully. Even in pre-employment discussions, determine why the employee is leaving the competitor and if the employee has signed any contracts with it. Those contracts may have terms that impact the employee’s ability to work for you.

If an employee is not under a written contract with the employer, there are still state and federal laws prohibiting the misuse of a company’s proprietary or confidential information for business advantage. Unfairly competing with a competitor by using the information provided by a former employee—confidential or not—is also prohibited.

Penalties for breaching a non-compete clause are usually severe and can include lost profits and the recovery of attorneys’ fees and costs. If you have questions about non-competes or post-employment restrictive covenants of any kind, consult legal counsel. This is not a self-help area of law.

Comprehend Individual Non-Compete Agreements

The specifics of each individual contract with non-compete clauses are a must-know. These specific agreements are often called restrictive covenants and strictly clamp down on exactly when, where, and even how an employee works next.

Some outright forbid working for a competitor regardless of the situation, while others restrict geographic locations, markets, or even the time the employee is bound to the agreement itself. Knowing the specifics ensures everything stays in order during hiring and saves a lot of headaches in the long run overall.

Assess the Scope and Duration of Clauses

One thing to know about non-compete clauses when hiring your competitors' ex-employees is to understand the scope and duration of these clauses. Non-compete clauses outline the specific restrictions and limitations imposed on employees regarding working for or starting a competing business after leaving their previous employer.

By understanding the scope, which includes the geographic and industry limitations, as well as the duration of the non-compete clause, you can assess any potential restrictions that may affect your ability to hire these individuals. This knowledge allows you to make informed decisions and ensure compliance with the legal obligations associated with non-compete agreements.

Roy Lau, Co-founder, 28 Mortgage

Understand Enforceability Factors

For non-compete clauses, courts often consider additional elements, such as protecting legitimate business interests, the level of competition, and the potential impact on the employee's livelihood. This means that even if a non-compete clause appears valid on the surface, it may not hold up in court if it is deemed excessively restrictive or unfair.

Recruiters should assess the reasonableness and proportionality of the non-compete clauses they encounter, considering the specific circumstances and context. By understanding the nuanced factors that can affect the enforceability, recruiters can leverage any loopholes and minimize the risk of engaging in legal disputes over non-compete agreements.

Mitigate Risks and Liabilities

When hiring your competitors' ex-employees, it's crucial to consider the potential risks and liabilities associated with non-compete clauses. These clauses restrict employees from working for a competitor for a specific period after leaving their previous employer.

By hiring someone bound by a non-compete agreement, you may expose your company to legal action or disputes. Understand the scope and enforceability of the clause, seek legal advice, and evaluate the employee's role to ensure it doesn't violate their obligations.

Conduct due diligence and consider negotiating with the competitor or employee to change or waive the clause if necessary. By being aware of these risks, you can make informed decisions and mitigate any potential legal complications.

Consult Employment Law Experts

When hiring your competitors' ex-employees, it is crucial to consult with legal experts specializing in employment law. They can provide valuable insights and guidance on non-compete clauses.

These experts will help you understand the implications of such clauses, including their scope, enforceability, and any potential legal risks involved. Seeking legal advice ensures that you navigate this process correctly, minimize the chances of legal disputes, and make informed decisions regarding the hiring of these individuals.

Jason Cheung, Operations Manager, Credit KO