This article was first published on HRLaws.com’s Tennessee Employment Law Letter by Butler Snow’s David L. Johnson
Few things get a business more fired up than a competitor “stealing” a group of its top performers. On its face, there’s nothing wrong with “corporate raiding”—targeting a large number of a competitor’s employees—in Tennessee or most other states. After all, it’s a free country, right? However, there are several potential pitfalls along the way. If it’s not done right, a lawsuit could be lurking around the corner. One employer found this out the hard way and recently got hit with a $19 million verdict in a Nashville court.
All’s fair? Maybe not
Perhaps the most important thing for the raiding company to keep in mind is that employees often owe legal duties to their current employer, under an employment agreement or otherwise. Therefore, the raiding company should be extra careful that it can’t be accused of encouraging its target employees to violate their legal duties. For instance, a target employee may be bound by a contract that prevents him from soliciting coworkers to leave their current employment. If the raiding company encourages the employee to help it convince his former coworkers to join its workforce, it could be sued for inducing the target employee to breach his nonsolicitation agreement. That’s especially dangerous in Tennessee, which has a unique statute that allows for triple damages for inducing someone to breach an agreement.
Even in the absence of an employment contract, employees owe certain duties to their current employer. For instance, all employees—and particularly officers of a company—owe a duty of loyalty to their employer. That means employees can’t try to harm their current employer. Unlike the terms or duties set forth in a noncompete or nonsolicitation agreement, however, the duty of loyalty ends when the employment ends. An employee may violate her duty of loyalty if she encourages customers or coworkers to leave and join the raiding employer before her employment ends. Therefore, the raiding employer should recruit target employees directly rather than asking another target employee to help it solicit others while she is still employed.
With or without an employment contract, employees may not take their employer’s trade secrets or other property when they leave. If an employee shares his former employer’s proprietary information with his new employer, the new employer could be accused of conspiring with the employee to steal the information. In this day and age, it’s relatively easy to use a computer forensics examination to bust a former employee for foul play. When a company loses a key employee—or a group of key employees—you can rest assured that it will scrutinize his exit under a microscope and try to determine if he was up to no good.
To ward off a potential lawsuit, a raiding company should impress upon its target employees that they must have squeaky clean hands when they transition. For instance, target employees should be notified in writing that they’re expected to comply with all legal obligations they owe their current employer—for example, with regard to soliciting coworkers or clients and handling their current employer’s property. They should be told that under no circumstances can they use their current employer’s proprietary information or other property in the performance of their duties for the new employer.
An employer that has been raided should immediately get the techies in its IT department to conduct a computer forensics examination. It should comb through its former employees’ old e-mails—including supposedly “deleted” e-mails—for evidence of wrongdoing as well as figure out if they downloaded documents to a thumb drive or some other device before they walked out the door. If the employer has reason to believe that foul play occurred, it should also consider sending letters to the former employees and the raiding company demanding that they preserve correspondence and other documents that may be relevant in litigation and refrain from engaging in any unlawful activity.
David L. Johnson is an attorney in Butler Snow’s Nashville office. He can be reached at email@example.com.