Business Law Checklists Compliance/Best Practices Employment Law Legal Topics

Play Fair: Guidelines for New Employees Hired from a Competitor

505283113It’s common for customers or clients to want to stick with the person who has been handling their account even when that person moves to a different company. But this situation can create serious issues around trade secrets and unfair competition. So, whenever you hire someone from a competitor, give that new employee guidelines to follow—it will save everyone legal headaches.

The benefit of using guidelines for new employees from competitors is twofold: (1) they create positive evidence of your policy of fair competition, and (2) they evidence your intent to avoid use of the former employer’s confidential or trade secret information when the new employee communicates with former customers or clients.

The following sample guidelines apply a conservative approach in outlining how the new employee should deal with former clients or customers:

  • Don’t rely on or use in any way any information that you obtained or created while working for your former employer. Be able to show that, in contacting customers or clients, you didn’t need to use any information from your former employer.
  • Don’t take a list of customers or clients from your former employer. Instead, develop one immediately on your arrival at the Company using publicly available resources or the Company’s databases.
  • The Company will give you text for an announcement of your hiring, which will provide only your new contact information—it won’t ask the customer or client to transfer its account. The announcement will provide your office’s main number, not your direct extension, so that your sales assistant or receptionist can log, in writing, incoming calls from the customers or clients. Keep copies of any announcements you send and proof of when you sent them.
  • When customers or clients call you, ask them to put their request to transfer their business to you in writing, and save both a hard copy of their written response and the electronic version. You may not send them any account transfer paperwork unless they request that you send it to them.
  • When customers or clients contact you, ask them to provide copies of all relevant documents about their prior activities and describe relevant documents from their own files. Don’t use or rely on copies of documents on that customer or client from your former employer.
  • You need permission from your manager before making any announcements by phone. If you get permission, you’ll need to limit the content of your side of the call to telling them you’ve moved and, if they want to discuss doing business with you, how they can reach you. Let the customer or client ask you to assist them in transferring their business.
  • If the customer or client tells you they want to transfer their business in that first announcement call, have them reconfirm their request in writing, such as an e-mail.
  • If customers or clients talk to you about transferring their accounts but don’t want to confirm the request in writing, send them a confirming e-mail or letter that starts off with language such as: “Thank you so much for calling me (or asking me) about transferring your account(s) to the Company on _ _[date]_ _. I am happy to help you with your request.”
  • When you have your initial contact with customers or clients and they inquire about transferring their account, talk about why they should do business with you, not why they should not do business with your former employer. Don’t insult or defame your former employer or any of its employees.

These guidelines can either be given to an employee, with the employee then acknowledging receipt, or made part of the employee’s training by the employee’s manager, or both.

Find much more practical advice on dealing with employee defection and trade secrets protection in CEB’s Drafting Employment Documents for California Employers, chap 7 and CEB’s Advising California Employers and Employees, chap 11. On trade secrets law in California generally, check out CEB’s Trade Secrets Practice in California and the program Trade Secrets, available On Demand.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

4 replies on “Play Fair: Guidelines for New Employees Hired from a Competitor”

I do a good bit of litigation on issues of new employees “poaching” clients and employees of their former employer. This post has a VERY good list of steps to take to avoid litigation. I wholeheartedly embrace it and would urge all employers and hew hires to follow it.

But we should clarify that in California, employees have every right to aggressively solicit clients of their former employer unless they are relying on a customer list that actually qualifies as trade secret under the California Uniform Trade Secret Act (CUTSA). Very few customer lists qualify as a trade secret.

If the employee signed a Non-Compete Agreement with the former employer not to solicit customers in the future, that agreement is void under B&PC 16600. Non-Competes are still commonly found in employment agreements and they are unenforceable.

While employer still commonly claim that their client information qualifies for protection as “confidential” (even if not a trade secret), that argument is increasingly rejected by the courts. If you have a trade secret under CUTSA, make that argument. If not, you have nothing to litigate. Google Judge Lucy Koh’s decision in Sunpower v Solar City on this issue. It has an excellent summary of the law, leading to a very pro-employee decision.

Soliciting former employees to come join the new firm is another matter. An employer can fairly prevent that with a properly drafted clause in the employment or severance agreement. However, the employer can only prevent the former employee from initiating contact with his/her old coworkers. If the coworker initiates contact, resulting in a new hire, that’s perfectly legal and cannot be enjoined without running afoul of B&PC 16600.

California remains the most pro-employee state on these issues. Out of state employers are often dumbfounded that the pro-employer laws of their home state do not apply in the Golden State.

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