Recruiting: Are We Allowed to Recruit Employees from Competitors?

Our company’s hiring managers always want me to recruit from certain competitor companies. I’d like to know what legal and ethical limits there are on my right to recruit employees from other companies. Can I cold call someone in a competing firm and ask if they would be interested in working for my firm? What if I meet them at a professional meeting? If I hire a headhunter and say, “Here are the companies I’d like you to recruit from,” is that any different? Is it legal to have mutual “no poaching” agreements? — E.F. in Santa Barbara

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For this important question, we sought the advice of Scott Silverman.

In California, an employer may recruit from a competitor-provided that it does not use illegal means to conduct the recruiting. Illegal means of recruiting would include the following:

1. Using trade secrets. It is improper to use the competitor’s trade secrets to recruit. For example, an employer should not use secret information about the job performance of a competitor’s employees, such as confidential production or sales data regarding the employees obtained from a former employee of the competitor, to identify the best candidate. Use of compensation information may be improper if the competitor keeps it secret and the information comes from a third party, not from the employee being recruited.
2. While still employed. It may be improper to have one employee recruit another employee while they are both still employed by the competitor, if the co-employee uses deceptive or coercive methods. For example, if a company recruits a manager from a competitor who wants to bring along his staff, it is best if the manager waits to recruit the staff until he has left the employment of the competitor. The manager should also not lie to the employees that he wants to recruit about what will happen if he leaves. Nonetheless, it is not illegal for an employee, even a manager, to announce to his co-workers that he will be leaving to go to another company and then to put them in contact with the new employer if the co-workers say in response to the announcement that they want to go to the new employer, too.
3. Crippling competitor’s business. Although a gray area, it may be inappropriate for a company to recruit a large number of workers from a competitor in a fashion that cripples the competitor’s continuing ability to compete if all of the employees being recruited are not actually needed by the company that hires them. In other words, it may be improper to recruit employees primarily for the purpose of causing harm to the other company rather than because the employees are actually needed.

As to the examples mentioned in your question, it is proper to cold call someone in a competing firm and ask them if they would be interested in a job with a new firm. Similarly, it is proper to contact a potential recruit at a professional meeting. Further, it is proper to tell a headhunter that there are particular firms who may have suitable candidates, provided that the purpose is to recruit good employees and not merely to harm the competitor.

And, finally, as to “no poaching” agreements, there is a court decision in California holding that “no poaching” agreements, often called “no raiding” agreements, are lawful.¹

Scott Silverman is a partner at the Los Angeles office of law firm Morrison & Foerster.

¹ Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268