Recruiting Workers: Manager And New Employer Face Liability For Raiding Former Employer’s Staff; 3 Ways To Avoid Recruiting Lawsuits

It’s always disappointing when a top employee leaves your company. But disappointment can turn to disaster—and a lawsuit—if your former star takes along a group of other key employees. That’s what happened in a recent case in which the California Court of Appeal clarified the obligations of existing employees and competitors regarding attempts to lure away workers. We’ll look at ways to avoid trouble whether you’re the new or former employer.

VP Seeks New Employment

Randy Neal, a key manager in the Los Angeles office of GAB Business Services Inc., an independent insurance claims adjusting company, was promoted to regional vice president. But after a falling out with GAB’s new president, Neal started job hunting.

Lindsey & Newsom Claim Services Inc., a Texas company, wanted to expand its operations and offered Neal the new position of western regional manager. Neal reportedly asked the company president, Terry Grant, for a “couple dozen” employment applications and then secretly approached 17 other GAB employees about going to work for Lindsey & Newsom.

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Competitor’s Staff Hired

Neal then presented Grant with an all-or-nothing deal: he’d accept the job offer if he could bring the 17 GAB employees with him. Although Grant hadn’t known about Neal’s scheme, he agreed to the proposal, and Neal and the other GAB employees simultaneously announced their resignations.

GAB sued, charging Neal with breaching his fiduciary duty as a GAB corporate officer and Lindsey & Newsom with unfairly competing and interfering with GAB’s employment relationship with its employees.

Fiduciary Duty To Employer

Neal argued that he had no legal duty to GAB because he wasn’t a top corporate official, such as a president, majority shareholder or director, and didn’t have a significant level of control within the corporation.

Rejecting Neal’s contention, the appellate court said that as a corporate officer with the authority to make important management decisions, he had a fiduciary duty to GAB. This meant that he had a legal obligation to refrain from doing anything that would hurt the company while he was employed there.

The court also ruled that Lindsey & Newsom could be liable to GAB for unfair competition if it reaped the benefits of Neal’s alleged illegal actions. The case will now be sent back for a jury to decide whether GAB should recover damages from Neal and Lindsey & Newsom.

3 Useful Recruiting Strategies

Here are some precautions you can take to keep your employees from being spirited away, and if you’re hiring a new employee, to avoid claims of unfair hiring practices:

 

1. Use anti-raiding agreements. Have all employees, regardless of whether they’re corporate officers, sign an agreement when they are hired promising they won’t solicit co-workers to leave your organization.3

    

2. Find out about existing contracts. Before hiring an applicant, determine whether the person has signed an employment contract, anti-raiding agreement or confidentiality agreement with their previous employer. If so, review the paperwork carefully before making an offer.

    

3. Use caution when hiring from competitors. Don’t allow a job candidate who is a corporate officer, while still employed by a competitor, to solicit co-workers to leave their employer to work for you.