Stealing employees – May an accountant solicit away your employees?
By Matt Dickstein
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California law protects the right of employees to change employment, and of competitors to hire one another’s employees. Hence a former employee or a competitor may hire your employees. What they can’t do, however, is steal your employees. This article explains the difference. I also give you some practical measures to protect yourself.
Employee’s Duty of Loyalty
An employee may not solicit your other employees while he is still working for you. While in your employ, the employee owes you a fiduciary duty of loyalty. An employee breaches that duty by soliciting away your other employees to work for a competitor.
The key word is “solicit.” The departing employee may not solicit other employees to leave. The departing employee, however, may announce that he is leaving, and other employees may choose to go with him. He may only announce his departure, then back off and wait for other employees to initiate contact and ask if they can go with him. For more on this concept, see my website article, May an accountant compete against his or her former practice?
Preparing to Leave
Before leaving your employment, the employee may make some preparations to compete, but he still owes you the duty of loyalty. It’s a fine line between preparing for a new gig, and breaching the duty of loyalty. In brief, at some undefined point during his preparations, the employee must either resign or make full disclosure to the employer of his plans for leaving. The undefined point is when the employee is actually harming his employer. In most cases, the employee should resign when he can’t avoid a conflict of interest.
California law protects employers from raiding by competitors. An employee or competitor may not take a large proportion of your employees with the intent of driving you out of business. You must prove the employee or competitor had bad intent. Evidence of intent includes emails, texts, and witness testimony about what the bad employee or competitor did or said when soliciting your employees.
The departing employee may not take your trade secrets or confidential information, and a competitor may not hire him to gain access to same. For example, the employee might have access to confidential information about your clients or referral sources, and your competitor hires him to get the confidential information. California law prohibits this bad conduct. For more, see my website article, May an accountant compete against his or her former practice?
Protect Yourself from the Departing Employee
You can protect yourself from unfair raids on your employees. When an employee announces his intention to leave, you don’t need to let the employee hang around. At that point, the employee is more a liability than an asset.
Consider terminating employment so that you can cut off the employee’s easy access to your other employees. Further, by paying salary you just finance his transition to your competitor (although you might have to pay the employee’s salary if you have a contractual notice period for termination). In addition, advise the employee that you’ve retained counsel, and you intend to protect your employees, confidential information and trade secrets.
Protect Yourself from New Hires
Imagine that you just hired an accountant from a competing firm. The roles are reversed — now the competitor is looking to sue you for raiding its workforce. All of the above rules apply to you.
Be especially careful with the new hire who intends to bring his entire team or group. The new hire might have breached the fiduciary duties we talked about above – he might have solicited the team to go work for you, a competitor. Don’t be complicit in the bad conduct. Instead of targeting the competitor and taking an entire group or office from it, recruit from multiple sources. Certainly don’t talk about how the competitor’s loss of the entire group will cripple it. Further, interview each new hire to be sure that no illegal conduct occurred in their transition, and that no one brings any data from the old firm. Have them all sign written representations to this effect.
You should talk with an experienced attorney whenever you lose or gain a key employee. Do not go it alone.