Hiring Someone With A Non-Compete

Hiring Someone With A Non-Compete

Client Resources | October 2, 2018

Non-competes are common.  You can find them among doctors and among fast food workers.  You may even have your own employees sign them.  But your business not only needs to keep employees, it needs to hire them.  So how do you hire someone that has a non-compete?  Like most things in business, hiring someone with a non-compete requires a cost-benefit analysis.  Here are some suggested steps to lower the potential costs.

Of course, hiring legal counsel at the outset is best.  The law, especially in Georgia, on non-competes varies greatly depending on the underlying facts of each case—specifically the particulars of the old job, the new job, and the agreement’s language.  Often, non-competes are not completely enforceable.  A classic indicator that a non-compete is overbroad is when it would bar a sales or executive employee from taking a job as a janitor at a competing business.   Sometimes, non-competes cannot apply to managerial positions without direct customer contact.  Experienced legal counsel can evaluate what parts of a non-compete are likely to withstand a legal challenge.

First, ask all applicants if they have non-competes.  Your business can end up as a defendant in a lawsuit by a former employer whether you know about a non-compete or not.  You would rather know on the front end.  That way, you can take steps to avoid litigation.

Second, check to see what law governs the non-compete.  Some states—typically not the ones chosen by drafters of non-competes—ban non-competes entirely (California, for example) or ban them for certain categories of workers.  Depending on where the employee works and lives, there may be arguments for applying state law not chosen by the agreement.

Third, determine overlap between the position you’re offering and the applicant’s current or former position.  Overlap includes job duties, customers served, and geographical area worked in.

Fourth, consider ways to comply with the non-compete and eliminate that overlap by walling off the applicant from similar job duties, customers, and geographical areas.  Perhaps this means the applicant only would work out of one office or in a non-managerial position or in a non-sales role until the non-compete terms ends.  Or perhaps the applicant cannot receive any commissions until that term ends.

Fifth, consider how key a hire the applicant is.  Is the applicant significantly more qualified than another applicant without a non-compete? How much revenue can the applicant generate?  How much experience will the applicant bring?

For potential hires that could bring significant revenue to your business or otherwise drastically improve your business, consider paying for the potential employees to sit out their non-compete term.  One new employer took such an approach for a group of sales employees responsible for millions in revenue and had that approach approved by a federal appellate court.  In that case, the new employer even promised to pay the legal fees of the new employees, unless and until a court found that the employees violated their employment agreements with the former employer.  Though no doubt an expensive approach for the new employer, the federal appellate court decision[1] confirmed that paying employees to sit out their non-compete period may not create legal liability for the new employer.  The court emphasized the lack of any evidence showing that the new employer encouraged the new employees to violate their non-competes.  Specifically, the new employer did not pay the new employees commissions based off of revenue from any particular client.

Sixth, if you decide to hire the applicant, document what the new job duties will be.  Even better, advertise jobs with a job announcement describing the duties.  Both types of documentation can help in a dispute over what the employee was hired to do for the new employer.

Seventh, consider an employment agreement to lessen your risk of hiring an applicant with a non-compete.  That employment agreement could document your instruction to the applicant not to bring or use any confidential information of the former employer and the applicant’s promise that he or she is not bound by any non-competes or is not going to engage in any conduct that violates a non-compete.

Eighth, be careful of what information the potential applicant provides your business.  You do not want to receive—even accidentally—information that an angry former employer could call trade secrets.  Even accidental receipt can make your business a defendant in a hard-to-shake trade secrets case.

[1] Document Techs., Inc. v. LDiscovery, LLC, 731 F. App’x 31, 33 (2d Cir. 2018).

 

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