12 Tips for Arizona Employers When Hiring an Employee with a Non-Compete and/or Trade Secret Considerations

  1. I want to hire an employee who used to work for a competitor. Can I do that?

    As a general rule, yes. However, the employee should first terminate his or her employment with your competitor and you cannot obtain or use any of your competitor’s trade secrets that are in the employee’s possession. You also need to know whether the employee has a non-compete agreement (you do this by asking the employee).

  2. The employee does not have a non-compete or any written trade secret information. Will I avoid a problem?

    You’re probably Ok, but keep this in mind – employees can carry trade secrets in their heads. If they disclose the trade secret to you, they have violated the trade secrets law. If you use that trade secret information, you will have probably violated the trade secrets laws as well. Bottom line – resist the temptation to pump the former employee to give you confidential information about his/her former employer. 

  3. The employee promised not to disclose any trade secret information, including trade secrets that he carries in his head. Am I okay now?

    Probably. Trade secrets law disclosure violations require an actual or threatened misappropriation of a trade secrets. Thus, as a general rule, if the employee does not bring or disclose any trade secrets to your company, you should be okay.

  4. The employee is a mid-level sales associate with no knowledge or possession of marketing plans. Now can I hire her?

    From a trade secret’s standpoint, you appear to be on solid ground. However, you also need to know whether she is bound by a non-competition agreement that she would breach by accepting your employment.

  5. She has a non-compete, but my company never signed it. Since we did not sign the agreement, we have nothing to worry about, right?

    Wrong. Most states prohibit a third party from improperly interfering with the contractual relationships between two other parties. This is known as tortious interference with a contract. In your case, the non-competition agreement is a contract. If your company interferes without justification (like employing their former employee to compete with them), the former employer may have a claim against you for tortious interference with the non-compete agreement they have with their former employee.

  6. Are the companies really competing?

    Even though they may be in the same industry, if there is little product overlap then the risk of violating the non-compete may be lower. This of course requires a very careful and rigorous scrutinization by your attorney of the exact language contained in the employee’s non-compete.

  7. If the agreement is enforceable, what justifications would allow me to employ my competitor’s employee?

    Technically, your competitor has to prove that you lack justification. You do not have to prove that you had a justification. Proving that you lacked justification requires evidence that your interference was “improper.” Courts evaluate whether your interference is improper based on: the nature of your conduct, your motive in interfering, your competitor’s interests in its contract with its employee, the interests that you are pursuing, the social interests in protecting your freedom to employee the fellow and the contractual interests of your competitor, how directly you interfered, and the relations between the parties.

  8. What is the worst that could happen if I hire my competitor’s employee?

    You could owe your competitor for its lost profits and other foreseeable damages. In addition, if your competitor proves that you acted with malice or in conscious disregard of its rights, you could owe punitive damages (that’s big mula!). In some cases, awards for tortious interference reach into the millions of dollars. My advise – consult with a lawyer ASAP.

  9. Ask to see a copy of a job candidate’s non-compete

    If you are hiring someone who is working for a competitor, or has worked for a competitor in the recent past, ask the job applicant whether they have a non-compete with any former employer.  If they do, ask to see a copy of it. This will help you determine whether the restrictions in the agreement apply to your business. Remember, your competitor may be able to enforce the non-compete with an injunction, which could end up costing your company lots of money.

  10. Check the agreement to determine what specific restrictions it contains.  Did their employer have them sign a Confidentiality Agreement that protects their trade secrets and other proprietary information?  Are they restricted from soliciting that business’s customers?

    Protect yourself with the right language:  You want to ensure that your new employee, and your business, comply with the restrictions in order to stand on strong legal ground. You can incorporate language into the offer letter to your new employee that takes these restrictions into account. For example, your offer letter might state that the new hire is prohibited from bringing any of their previous employer’s trade secrets, client lists, property or confidential information with them.

  11. Make sure you are correctly interpreting a candidate’s non-compete.

    It’s important to keep in mind that your interpretation of a candidate’s non-compete agreement might differ from the former employer’s interpretation.

  12. Ensure that the employee leaves everything behind.

    Most companies have a protocol for returning laptops, cell phones, or other hardware, as well as any confidential documents that pertain to a former employee’s work for the company. Do not rely on the employee to comply with that protocol. Review prospective employees’ compliance with their prior employers’ policies before allowing them to start at your company.

If you are facing a decision concerning this issue, please contact our office for a consultation.