What To Know Before You Hire From A Competitor? – Contract of Employment

In many industries right now, businesses are fighting not just
for clients, customers, and market share but to attract and retain
good talent.

If you’ve managed to recruit an employee from a competitor
– congrats! 

But before you put together the onboarding package and schedule
the welcome lunch, here are a few steps to take to avoid any
potential legal headaches: 

Identify Potential Risks 

Before hiring a candidate from a competitor, there are a few
potential risks to look out for, which may impact your strategy in
the hiring process or make you decide to go with a different
candidate altogether. Employees owe their current (and soon-to-be
former) employers a number of duties, that can be outlined in their
contracts, based on the common law, or the fiduciary nature of
their position. If any of these duties are breached, it could
result in expensive litigation, a damage award, and paying the
other side’s legal fees- for the employee, the hiring
employer, or both. Further, if any of the below duties are
even perceived  to be breached, you could still
end up defending expensive litigation. Therefore, not only
should actual breaches be avoided, but also
anything that could appear to be a breach from
the outside. 

Is the candidate subject to an enforceable restrictive covenant
in their contract with their current employer? This could take the
form of a non-solicitation clause, which limits the
employee’s ability to solicit clients/employees of their
current employer for a certain period after they leave. If you are
hiring a particular candidate because of their business
connections, current clients, or strong relationships with other
high-value employees, you should find out if they are currently
subject to a non-solicitation clause. In that case, the
candidate’s ability to bring clients or employees with them
when they leave, and for a specific amount of time after they
leave, would be severely limited. Further, if any employees or
clients of the current employer do switch over to your business
shortly, this could have the appearance of breaching the
non-solicitation obligation, and could result in receiving a cease
and desist letter, or ultimately, a Statement of Claim. 

A candidate’s contract could also contain a non-compete
clause, which limits their ability to compete with the employer or
work in a competitive business, for a specified amount of time and
in a specified geographic location. If a candidate’s contract
contains an enforceable non-compete clause, working with your
company at all could constitute a breach of contract. Note that in
Ontario, non-compete clauses are now prohibited under
the Employment Standards Act, 2000, except for
executive employees or in the case of a sale of a business, see our
blog post on that topic here.

Finally, employees may be subject to confidentiality or
non-disclosure agreements, which could limit their ability to
disclose certain information gained while working for their former
employer. 

Regardless of any specific clauses contained in the employment
contract, all departing employees have a duty not to disclose their
former employer’s trade secrets or confidential
information. 

Another important consideration is whether the employee is a
“fiduciary” of their current employer, which means they
owe their employer certain elevated obligations beyond those of a
normal employee. Fiduciary employees can include directors,
officers, senior managers, and other key employees. Even without
specific contractual provisions, fiduciary employees owe their
employers duties of good faith and loyalty, confidence,
non-solicitation, and non-competition during and after their
employment. 

Whether there is a specific timeframe specified in their
contract or not, employees have a duty to provide notice of
resignation to their employer. In some provinces, this length of
time is determined by statute, or it can be outlined in the
employment contract. If the resignation notice period is not set
out in the legislation or the contract, employees must still
provide “reasonable” resignation notice. Depending on
the employee’s role and level of responsibility, the required
resignation notice could be quite lengthy, so this is something to
ask the candidate about and to keep in mind, particularly if you
require the candidate to start at a certain time. 

Practical Ways to Prevent Problems and Mitigate
Risks 

• Ask candidates whether they are subject to any restrictive
  covenants or other post-employment restrictions with their current
  employer. 




• A candidate who has worked for a competitor will likely have
  valuable information regarding the competitor’s business,
  strategies, customers, etc. While it may be tempting to try to get
  the inside scoop from the candidate, hiring employers should
  refrain from asking about or accepting information from the
  candidate about their current employer. 




• When making an offer of employment, ask the candidate to
  confirm that they have not taken any of their former
  employer’s confidential information or trade secrets, and
  will not use any confidential information from former employers in
  the course of their employment. 




• Once a candidate has accepted the offer of employment,
  encourage them to provide written notice of their resignation to
  their employer as soon as possible, and to cooperate in the
  transition process. 




• If the candidate is bringing clients or co-workers with them,
  ensure that the clients were not solicited (or appear to be
  solicited) in breach of any restrictive covenants. 




• Discourage the candidate from soliciting their co-workers, and
  avoid active solicitation of other employees of the same company.
  If another employee of the same competitor applies for a job,
  ensure to document in detail how that candidate came to apply to
  the job posting. 




• Use general best practices as you would in any potentially
  contentious workplace situation: keep everything as transparent and
  above board as possible, and document all steps taken and
  communications with relevant parties written with the eyes of an
  adjudicator in mind. 

To ensure a smooth transition when hiring from competitors,
follow these proactive steps to mitigate legal risks and maintain
ethical practices.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.