I recently read a lengthy, and I have to admit, well-crafted letter by one employer (who I will call Company A) accusing a former executive (Mr. B) of violating every conceivable restriction relating to recruiting employees from Company A. Mr. B had left Company A and remained in touch with his old colleagues. In fact, in his former life Mr. B had recruited many of them to work for Company A. Now Company A’s counsel accused Mr. B of unspecified violations of law because he had specialized knowledge of the employees’ compensation, capabilities, career interests and ambitions, and knew the impact on Company A if the employees – one or all – left to accept employment with the company where Mr. B now worked. The letter was so well crafted that upon first glance it appeared both Mr. B and his new company were deep in trouble.
Or were they?
Upon closer read, I noticed that something was strangely absent. There was no mention of any employment agreement between Company A and Mr. B. No reference to Mr. B being subject to any restrictive covenant with Company A, whether it be non-compete, non-solicitation, or even protection of confidential or proprietary business information. And why no mention? Because Company A had failed to require Mr. B to sign any such agreement. Now Company A needed to “create” those agreements where none existed.
This scenario is a classic example of not thinking ahead. Company A failed to protect its financial investment and employees’ intellectual capital. Putting aside the prohibition or difficulty in some states of a true non-compete, most of Company A’s problems could have been solved with a few simple documents. So what should Company A have done?
Restrictive covenants can be dicey. States vary as to their laws and enforcement, the new Defense of Trade Secrets Act creates a federal cause of action in some instances, and there is the employee relations issue of how people will react if asked to sign. But unlike our friends in Company A – who tried to create an obligation where none existed – think ahead of how to secure or retain the continued employment or good employees.