Recruiting quality candidates in any market, let alone a tight market, is not easy. Successful hiring is made even harder by the seeming omnipresence of the dreaded noncompetition agreement—a form of contract that employees sign with their current companies that is designed to keep them from working for a competing firm.
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The impression in many organizations is: We just keep getting blocked by those darn contracts! And, when you find that a candidate you want has no contract, you believe: We are now able to charge ahead! Sorry. Despite the absence of an employment agreement, you and your company still face great challenges and risks as the recruiting dance gets under way. Indeed, the risks you face present at least as many—and, perhaps, greater—legal and business challenges.
The first piece of the hiring puzzle to understand is timing. Specifically, companies that, as part of their business model, hire from competitors need to appreciate the fundamental distinction between contract-based risks and predeparture conduct risks.
By definition, the contract you were so glad not to see kicks in only after the recruit says, “I quit.” However, regardless of whether there are any so-called postemployment restrictive covenants, what happens before the moment of departure must be the hiring company’s first and primary concern.
Every state has a body of laws that govern what a person may or may not do before he or she resigns to join a competing company. What overrides all the legalese is one—although there are more “lesser”—relatively straightforward-sounding proposition: While employed by company “A,” an employee may not compete with his or her company or take steps to help the New Company.
Although that sounds like a commonsense and easy rule to follow, it is anything but simple because, for example, “competition” comes in many forms:
- The revenue generator who asks clients if they might continue with him or her if he or she moved to the Next Company is “competing.”
- The manager who bad-mouths his or her company to direct reports in order to precondition them for a switch is “competing.”
- The top salesperson who hears about a new potential piece of business but pushes it out for a while so that he or she can bring it into the New Company is “competing” (it’s called warehousing).
- The CEO who reveals during the interview process where he or she thinks his or her company is heading is “competing.”
Because so many seemingly “normal” or natural exchanges that occur during the hiring process are laden with risk, it is imperative that everyone involved in the company effort be informed and in sync.
All the greatest intentions will mean nothing if just one person in the hiring chain steps out of line. It is therefore critically important that everyone interacting with the candidate understand the great risk created if he or she induces or even has a part in predeparture competitive misconduct.
So, for now, always remember: The absence of a contract does not mean the candidate and the company are risk-free! The candidate may not have a noncompete agreement, but he or she has plenty of other stuff for you, the hiring company, to worry about.
 Steven L. Manchel, Esq., possesses the highest-possible attorney rating and has extensive national experience in recruiting matters, broker-dealer litigation, securities litigation, and complex civil litigation.In the employee departure arena, he has handled matters ranging from single employee transitions to the types of retention and attraction issues arising from large corporate mergers and acquisitions.The case study in his new book,
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