Reducing the Risk of Litigation When Hiring Employees with Non-Compete Agreements

Hiring an employee who is subject to a non-competition agreement can be a risky venture.  In many instances, the new employer can find itself on the receiving end of an expedited lawsuit along with the new hire.  But there are a few simple measures new employers can take to reduce the chances of being named as a co-defendant in a lawsuit. 

First, make certain your new hire has “clean hands” before commencing employment.  This means that all documents, computers, PDAs, flash drives, and any other property arguably belonging to the former employer has been returned intact.  The employee needs to be aware that erasing hard drives and databases before returning equipment (even if inadvertent) can often result in a negative ruling from the court or even a spoliation finding.  Once completed, the employee should confirm in writing that all property in his possession has been returned to his former employer. 

Next, make sure the potential new hire does not engage in competition while still at his old job.  In Delaware, it is generally permissible to make preparations to compete while still employed, which would include discussions with other companies about possible employment opportunities.  But employees often cross the line when these discussions develop into actual competition, and if there’s evidence the new employer encouraged these acts, it may open the door for a civil conspiracy claim. 

Finally, before the employee commences work, there should be a written agreement confirming that the employee has returned all property to his former employer, that he will not to disclose any protected confidential information or trade secrets, and address any limitations that will be placed on his job functions and/or ability to solicit past / current customers.  This last point will likely require some analysis of the employee’s agreement not to compete and a decision about which provisions are and are not enforceable.

While new employers cannot totally eliminate the risk of being named a co-defendant in a noncompetition lawsuit, the above steps should help lower the risk associated with hiring a new employee.  These steps also will prove invaluable should the employer have to defend against a noncompete case.

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