Personnel Points

Ramifications of competitive raiding

by Dave Mount, Westaff

Back in the May issue, I addressed the subject of hiring from a competitor. It obviously hit a nerve among readers, who have asked me to explore it again, in some depth.

When I again looked at whether it’s OK to hire someone from a competitor, my answer, as it is with many answers of this type, is that it all depends.

First we need to examine our own motives. Why do we want to hire someone from a competitor? Is it because that person has a reputation as the best in the area, or is it to try to learn some of our competitor’s secrets?

Today, many companies have employees sign non-compete agreements or covenants. These typically restrict a person from going to work for a competitor within x number of miles and for y months or years after leaving the company.

Typically, the x could forbid the employee from working for a competitor within 50 miles, which would exclude the greater Burlington area and maybe even Montpelier or Middlebury. The y also varies, often up to two years, depending on the industry.

Now, I am not a lawyer, but many of these covenants are unenforceable, and even if they are, enforcement can be an expensive proposition. In some states, covenants not to compete are not legally enforced at all. Many courts look at the x and y to see if they are reasonable. For example: Is it reasonable to stop an office worker from going to work for a competing company? Most courts would rule that it is not. On the other hand, if your star sales representative goes to a competitor, your entire company (or territory) may be in jeopardy and the court may rule differently.

Certainly, the most compelling reason for a company that loses an employee to a competitor to go to court is the area of privileged information or trade secrets. Costs are definitely secret or privileged information, as are future marketing plans and pricing. Courts are much more apt to find in favor of a company if trade secrets are involved, because legally, the hiring of an employee for the trade secrets of a competitor is considered theft.

It boils down to the fact that having employees sign a statement or contract containing a non-compete covenant is more morally enforceable than legally enforceable. However, if the employee is active in setting company policy and/or has access to proprietary information (trade secrets), the covenant is likely to be upheld by the court.

The second factor you should consider in hiring from a competitor is the perception of the marketplace and within your industry.

For example, when I was shopping for a new car, I mentioned to the salesman that I had just come from another dealer, where I had found their models too small. He then proceeded to extol the virtues of his cars over the others. Good salesman. Six months later, however, he went to work selling the other brand and sent me a letter extolling its virtues over the model I had bought from him. You can bet I’ll never buy a car from him again.

There are plenty of people who have sold for one company and then for another in the same industry. This has its benefits, as you gain from the employee’s experience, even if no trade secrets are involved. However, it’s important to be aware of how many times the person has jumped from job to job, because that employee can not only take knowledge of your company with him or her when he leaves, but it’s a safe bet he or she will leave.

Another example of what can happen when you hire from a competitor happened to our own company earlier this year. We hired an employee from a competitor who was 30 miles away. We had more advanced systems than they had, and we were not interested in their pricing, so I had no qualms about the hire.

My new employee’s former company had been using a photograph of its three-person staff in its newspaper advertising. For months after she came to work for us, her photo appeared in the newspaper under our competition’s banner.

So the “it all depends” rule applies here. A company conscious of its image with the public and within its industry will be very careful in hiring from a competitor. Sometimes it’s the right thing to do, but sometimes it’s not. •

Dave Mount is the owner of Westaff in Burlington.