How can the new employer protect itself from liability when an employee breaches a non-compete agreement with a former employer?

A note on this post: this blog post is part of our series, “Non-Compete Agreements: When are they valid, and when can the new employer be sued for an employee breach?” In this post we will discuss what new employers can do to avoid liability for employees breaching non-compete agreements with former employers. To learn what kind of damages and remedies can result from a successful lawsuit, check back in a few weeks for the next post of our series, What are the possible damages for breach of non-compete agreements?

As mentioned in our last post, Can the new employer be liable for an employee breaching the non-compete agreement with a former employer?, lawsuits against new employers for an employee breaching a non-compete with a former employer are very rare. There usually has to be some sort of malicious intent and damage to the former employer.

Another important thing to keep in mind is that these agreements may not even be valid. (See the first post in our blog series, When is a non-compete agreement enforceable?)

However, on the chance that they are, there are a few steps that an employer can take to reduce the likelihood of a lawsuit and the likelihood that, if a lawsuit occurs, they will win. We will discuss how an employer can protect themselves from two claims, tortious interference with a contract (“interference with contract”) or tortious interference with prospective economic advantage or prospective business relations (“interference with relations”). For more information on these types of claims, see our previous post in the series, Can the new employer be liable for an employee breaching the non-compete agreement with a former employer?

Interference with Contract

If you are hiring individuals that may have signed a non-compete agreement, you can protect yourself against interference with contract in several ways.

It might be a good idea to avoid knowledge of the non-compete agreement. Unfortunately, this will not always be possible. The employee may ask whether the non-compete is a problem, or you might hire someone that used to work for a company that you know uses non-compete agreements.

If you do find out that the employee has a non-compete agreement with a former employer, it is also important not to induce the employee to break the non-compete agreement. If you do, the court will examine whether this inducement was done with malice. While malice might be very difficult to prove, it is a “question of fact” which could lead to unexpected rulings or a drawn-out litigation.

Finally, you can do everything in your power to avoid causing damages to a competitor through use of the employee. This does not mean you have to alter your publicity or avoid competing with the company completely. Advertisement, solicitation, or competition should not cause a problem unless done through the employee. You should not (a) ask or allow the employee to bring over clients from the old employer or (b) ask or allow the employee to handle any clients that they handled while working for the former employer. This is especially important because causing damages is not just part of the claim, it is also more likely to anger the competitor enough to sue in the first place or to support a claim for wrongful inducement.

Interference with Relationships

If the court uses the interference with relationships claim, the new employer is less likely to be liable because it requires recruiting the employee while still working for the former employer. If you are recruiting employees currently employed by someone else, the standard here is a little different.

First and foremost, ask if the currently employed individuals have non-compete agreements. In this case, ignorance will not help you defend against a lawsuit. If they have a non-compete, do not hire them or encourage them to quit first so that you can hire them. Inducing an employee to leave the employer is the main element of the claim.