No Non-Compete, No Problem? Always Proceed With Caution When Recruiting From Competitors

Recruiting quality candidates in any market is not easy — let alone in a market as tight as this, with its 3.6 percent unemployment rate. And hiring is made even harder by the seeming omnipresence of the dreaded non-compete agreement, a common contract or clause designed to prevent an employee from working for a firm that competes with their current employer.

By some estimates, as many as 20 percent of American workers are subject to non-compete agreements. No wonder many organizations today feel like: “We just keep getting blocked by those darn contracts!”

So, when you find great candidate who doesn’t have a non-compete with their current employer, your first thought is probably: “Excellent! Now we can charge ahead without worry!”

Sorry to be the bearer of bad news, but I’m here to tell you that despite the absence of an explicit non-compete agreement, you and your company still face great challenges and risks as the recruiting dance gets underway. Indeed, the risks you face present at least as much of a legal and business challenge as the risks you face when a candidate has signed a non-compete. In fact, the risk may be even greater.

Contract-Based Risks vs. Pre-Departure Conduct Risks

The first piece of the hiring puzzle to understand is timing. Specifically, companies that hire from competitors need to appreciate the fundamental distinction between contract-based risks and pre-departure conduct risks.

The contract you were so glad not to see kicks in only after a candidate says, “I quit.” However, regardless of whether there are any post-employment restrictive covenants, what happens before a candidate’s 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 they resign from one company to join a competing one. What overrides all the legalese is one relatively straightforward-sounding proposition: While employed by Company A, an employee may not compete with that company or take steps to help their new employer, Company B.

While that sounds like common sense, it is in reality anything but simple. Why? Because competition actually comes in many forms. For example:

1. The revenue generator who asks clients if they might continue with him if he moved to Company B is competing.
2. The manager who bad mouths her company to direct reports in order to precondition them for a switch is competing.
3. The top salesperson who hears about a new potential piece of business but pushes it out for a while so that he can bring it to his new company is competing. (Specifically, this version of competing is called “warehousing.”)
4. The CEO who reveals during the interview process where she thinks her current company is heading is competing.

Because so many seemingly normal and natural exchanges that occur during the hiring process are laden with risk, it is imperative that everyone involved in the effort be informed and in sync. All the best intentions in the world 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 they create by inducing — or even being involved in — pre-departure competitive misconduct.

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General Is Better!

Luckily, staying inside the bounds of proper behavior isn’t terribly difficult. It just requires some caution and careful attention to your conduct. One particularly helpful technique is for both sides of the process to speak in as general terms as possible when discussing the candidate’s current company.

So, for example, when the manager being interviewed is asked to “tell us about the stars on your team,” the manager shouldn’t identify anyone by name. Instead, the manager should discuss in general terms how the team was assembled and the workload distributed according to individual strengths and weaknesses.

The interviewer can also make sure the conversation stays in bounds by steering the discussion as necessary. If the manager begins to volunteer the names of people who might follow him to the new company, the interviewer can respond immediately with, “We are here to talk about you.”

These principles of generality apply in full force to conversations about revenue sources in particular. Never identify or ask to have identified clients or referral sources by name. Instead, stick to the type of business being done and how concentrated (or not) the revenue is at the time of the interview.

For now, always remember: The absence of a contract does not mean the candidate and company are free of risk! Even without a non-compete agreement in place, a company may have plenty 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. He is the author of I Hereby Resign .