Important Disclaimer

April 2005

Think Twice Before Inducing A Competitor's Employees To Quit
Prepared By: Melissa C. Marsh

In an effort to promote fair and lawful competition, the California Supreme Court unanimously ruled in Reeves v. Hanlon, 33 Cal. 4th 1140 (2004) that a new employer that engages in "independently wrongful acts" to intentionally induce the at-will employees of another employer to leave and join the defendant can be held liable for intentional interference with prospective economic advantage. The Court acknowledged that "one commits no wrong merely by soliciting or hiring the at-will employee of another" and that "it is ordinarily not a tort to hire the employees of another for use in the hirer's business." But, the Court also held that "if either the defecting employee or the competitor uses unfair or deceptive means to effectuate new employment, or either of them is guilty of some concomitant, unconscionable conduct, the injured former employer has a cause of action to recover for the detriment thereby suffered."

While it remains clear that an employer commits no actionable wrong by merely soliciting or hiring the at-will employee of another, a new employer may be held liable under an intentional interference theory for intentionally using "illegal or immoral" methods to induce an at-will employee of a competitor to quit working and join the defendant. To prevail on such a claim involving at will employment, the aggrieved former employer must plead and prove that the defendant engaged in an independently wrongful act, an act ‘proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." In Reeves, The Supreme Court reasoned that this standard strikes a fair balance between lawful competition and unfair competition in the context of at-will employment relations. In the Court's opinion, this standard will guard against unlawful methods of competition in the job market, and yet support the right of at-will employees to pursue better opportunities and support the right of employers to compete for talented work.

Because the conduct in Reeves was so egregious, the Supreme Court did not specifically define what constitutes an "independently wrongful act." The Court did, however, note that at the time the former employer's at-will employees were being lured away, the defendants mounted "a campaign to deliberately disrupt plaintiff's business." This campaign included such things as: (1) encouraging new hires to quit abruptly without notice so that they compromise deadlines of their former employer; (2) instructing or encouraging departing employees to delete computer files, destroy documents, misappropriate confidential information or trade secrets; and (3) encouraging former employees to solicit customers of the former employer.

Reeves sends a clear message to California's employers— When hiring new employees do so in a legal and ethical way. Restrict all new hires from "soliciting" customers of their former employer, from any and all means other than a simple "professional announcement." Merely informing customers of one's change in employment, without more, is not solicitation and Reeves suggests that no liability will arise from the act of sending a professional announcement that states one's new address and telephone number or other contact information. However, Reeves does suggest that liability may attach if the former employee solicits.

What Should You Do Now?

1. Make sure your hiring practices are directed toward acquiring talent, not causing harm to your competitors or toward gaining access to your competitor's information.

2. Inform all new hires in writing that they: (a) must give their former employer ample notice of their departure, (b) must not to take any "unethical or illegal" actions, (c) should not "burn any bridges" with their former employer, and (d) should remain professional and cooperative during their transition to their new employer.

3. Instruct all new hires in writing not to take, copy or remove any information from their former employer which may be considered to be confidential information or a trade secret, including but not limited to the former employer's customer lists or pricing information In most disputes, the identities of the former employer's customers and the former employer's pricing information form the basis for claims against the hiring company.

4. Instruct all new hires in writing not to use or disclose information, including the contents of their memories, that may be considered confidential information or a trade secret of their former employer such as the identities of their former employer's customers and their former employer's pricing information. It is a common misconception in California that only the physical taking of confidential information or trade secrets creates liability. Pursuant to California's Uniform Trade Secrets Act, it is illegal not only to remove and copy confidential information, but also to use the content of your memories to use or disclose trade secret information. See California Civil Code §§ 3426.1 to 11, See Also, Morlife, Inc. v. Perry, 56 Cal.App.4th 1514, 1523 (1997).

5. Require all new hires to disclose and provide copies of any confidentiality agreements, non-solicitation provisions, intellectual property assignment clauses, or any other agreements which could limit or restrict their post-termination activities.

6. Modify your existing employee non-solicitation provisions so they are consistent with the holding in Reeves.

© Melissa C. Marsh 2005 All Rights Reserved.

If you have any questions, or would like further information, please e-mail us at
mmarsh@yourlegalcorner.com or call: 323-655-1002.

Disclaimer: This article has been prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. Readers should not rely or act upon the information contained in this article for any purpose without seeking legal advice from a local licensed attorney in your state. This article is not, and should not be used as, a substitute for legal advice as your specific factual circumstances may differ, the laws of your jurisdiction may differ, and the laws may have changed. Your use of this Internet site does not create an attorney-client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited.