A new California Supreme Court ruling sends a warning that if you lure away someone else’s employees by illegal or unfair methods—even at-will employees who are free to leave their jobs anyway—you could get hauled into court.
Attorneys Leave, Recruit Others
Daniel Hanlon and Colin Greene were attorneys with the Robert L. Reeves & Associates law firm in Pasadena, which Reeves headed. The firm’s name was later changed to Reeves and Hanlon.
One day, Hanlon and Greene resigned from the firm without warning to set up their own practice, Hanlon & Greene (H & G). On the eve of their resignation, they personally solicited key employees of the Reeves firm to join them. As a result, the Reeves firm lost nine employees over the next 60 days, six of them to H & G.
In addition, Hanlon and Greene allegedly began a campaign to solicit Reeves’s clients to discharge the Reeves firm and hire H & G. They also allegedly misappropriated Reeves’s trade secrets, destroyed computer files, and withheld Reeves’s property, including a company car. The Reeves firm lost 144 clients to H & G over the next 12 months, in contrast to a historical loss of just 1 to 2 clients a month.
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Damages for Raided Employer
Reeves sued, charging Hanlon and Greene with trade secret theft and interfering with contractual relationships with employees and prospective business opportunities. The trial court ruled in Reeves’s favor, including finding that H & G wrongfully interfered with Reeves’s employee relations, and awarded $150,000 in damages plus $47,000 in costs.
A California appeals court upheld the ruling, finding that Hanlon and Greene’s actions were designed to cripple the Reeves firm. The appeals court rejected H & G’s argument that they couldn’t be held liable for wrongful interference with employee relations because the employees they solicited away from Reeves were at will and therefore could have left at any time and for any reason.
Illegal Interference
Now the California Supreme Court has unanimously affirmed the ruling for Reeves. The court explained that in California, a third party can be sued for damages for intentionally interfering with a contractual relationship between two other parties— even if it involves an at-will agreement between an employer and its employee. Simply put, the employer’s ability to discharge the employee at any time for any reason doesn’t give a third party the right to unjustifiably induce termination.
Care Required
The court made clear that it is not illegal to hire another’s employees when they’re induced by a better compensation package or other favorable terms. You have a problem only if your recruiting efforts involve an independently wrongful act that induces the employees to leave. If that’s the case, you could get sued for interfering with your competitor’s employment relationship and for the illegal act itself.
For example, according to Shawna Swanson, a partner in the San Francisco office of the Fenwick & West law firm, if you defame a competitor while recruiting its employees, you can be liable for interfering with the employment relationship and for defamation. If you encourage employees to bring their former employers’ trade secrets to your workplace and you use the information to pursue more employees from the same company, you can be liable for interference and trade secrets violations.
3 Tips
Here are some tips to help you avoid problems:
- Review employment agreements. If you’re hiring, ask to see any confidentiality and nonsolicitation agreements the employee has with their current employer. Review the agreements carefully, abide by them, and don’t encourage the employee to breach them.
- Inform new employees of your intentions. Swanson recommends advising new employees in writing not to use or disclose confidential information from their former employer.
- Be truthful. When recruiting, disseminate only truthful—and, ideally, verifiable—information about your company and your competitors.