Strategies For Hiring Employees Subject To Restrictive Agreements

The use of non-compete agreements has increased dramatically. Bradley T. Adler, Do Non-compete Agreements Really Protect You?, Workforce, December, 1999 at 48. While you don't want to pass on a qualified candidate, you don't want to wind up in litigation either. The following guidelines may assist you in protecting yourself:

The Interview: During the interview, ask whether the interviewee is subject to any kind of agreement with any current or former employer. If so, require the candidate to provide a copy and, if they will not, consider the interview over.

The Covenants: Restrictive covenants come in all shapes and sizes. You need to recognize their categories:

• Covenant not to compete: Restricts a former employee from working for a competitor within a defined geographic area for a specified period of years.
• Covenant not to disclose trade secrets: Prevents employees from using trade secrets (e.g., customer lists) for another competing employer.
• Covenant not to solicit: Prohibits a former employee from soliciting the former employer's prospects and customers.
• Covenant not to raid employees: Forecloses an employee from recruiting his or her former co-workers.
• Assignment-of-inventions agreement: Contractually assigns ownership of an invention or copyright to the former employer.

The Options: Qualified candidates bound by covenants are not necessarily off limits. You may still have some options.

1. Is the covenant enforceable?

Courts will enforce covenants if they are reasonable. While the criteria for determining whether a covenant is reasonable varies from state to state, there are three common threads: whether the agreement protects a legitimate interest; whether the covenant covers a reasonable length of time; and whether the agreement covers a reasonable scope or geographic area. To determine whether something is "protectible," ask if it is something a competitor would pay money to know. If so, is it something the employer takes reasonable steps to maintain as confidential? Further, a time restriction is unreasonable if it impedes on the employee's ability to earn a living for too long. Generally, time limits that exceed two or three years are unenforceable; in e-business, however, even one year may be too long. See EarthWeb v. Schlack, 71 F.Supp.2d. 299 (S.D.N.Y. 1999), aff'd, 2000 U.S. App. LEXIS 11446 (2^nd Cir. 2000). Finally, courts are more likely to enforce a covenant if it is limited to specific locations or customers.

2. Is the covenant relevant?

If the covenant is enforceable, the next step is to determine whether the covenant is relevant. For example, if you, as a steel manufacturer, want to hire a person who has signed a covenant not to compete in the electronics industry for the next two years, the covenant is irrelevant. Alternatively, if you want to hire someone bound by a covenant not to raid employees and you do not wish to have that employee recruit, the covenant is irrelevant.

3. If the covenant seems enforceable and is relevant, can you offer the employee a position that ensures compliance within the scope of the agreement?

The key at this stage is to determine what the former employer's legitimate business interest is, and to take reasonable steps not to threaten that interest. Courts will be less likely to enforce the covenant if they find that the former employer's legitimate business interest is safe. Ask yourself how the prior duties and responsibilities of the former employment compare to the scope of the new job.

Also, instruct prospective employees in writing that they are never to disclose or use the proprietary, trade secrets, or confidential information of any other company and that immediately upon termination of their former employment, they are to return all property to their former employer. This may demonstrate to a court that your intentions were not to extract the former employer's valuable company secrets, but rather, to hire a qualified candidate. However, this option is not a panacea: some courts adhere to the "inevitable disclosure doctrine" and may conclude that the employee's new employment will inevitably lead to the new employer to rely on the employee's trade secrets. See Pepsico v. Redmond, 54 F.3d 1262 (7^th Cir. 1995).

4. Can you contract out of the covenant?

While he or she might be the most qualified and well-trained individual in your industry, proceed with caution before hiring from the competition. A proper selection process might be all you need to reduce the nuisance of litigation. If, in the end, the most qualified candidate is bound by a covenant, be positive that he or she is worth the litigation you might well face.