For many businesses, hiring new employees is a matter of an investment of time and other resources. Some companies spend a great deal of time recruiting and then training employees. Offering enticing sign-on incentives and benefits packages also costs a company money. They have made an investment in their staff and selected employees based on specified criteria. Therefore, when another company seemingly “steals” a company’s employees, it can seem unfair and even criminal. In California, though, it is technically, for the most part, legal to poach other companies’ employees, but there are a few rules for all to consider.
Rule 1: Employees Have a Duty of Loyalty to Their Employer
All employees have a responsibility to not act in a way that conflicts with their employer’s business interests. Some examples of an employee’s duty of loyalty are below.
- Keeping confidential a company’s trade secrets and internal business information from third parties and competitors
- Declining to take advantage of business opportunities that are not rightfully acquired by the company
- Not engaging in behavior or actions that are in direct conflict with an employer’s business interests
- Not using the employer’s resources for personal gain or a competitor’s gain
- Not competing with their employer’s business while still employed by the employer
- Refusing to take kickbacks or bribes from third parties that could potentially harm the business interests of the employer
Rule 2: Employment Contracts May Protect Employers
It is important to note that employment agreements cannot contain noncompete clauses in California. However, employment agreements, or employment contracts, can protect employers from losing employees before an employee’s contract ends. If an employee does not adhere to the terms of a legally binding contract, it is a case of a breach of contract, and they could be held accountable by law. When an employee quits their job to go to work for a competitor, their original employer could also be held accountable in a court of law for breach of contract, since they interfered with an employment contract.
A breach of contract in California is illegal and, if found guilty, the breacher typically must pay compensation to the non-breaching party for the amount of the potential losses incurred due to the contract breach.
Rule 3: Workforce “Raids” Are Illegal in California
Technically, poaching employees is not illegal in California, but restrictions on workplace raids are mentioned in the legislation. In fact, state law prohibits companies from acting in bad faith to solicit a mass amount of employees from their competitors to intentionally hurt their business. This is called “raiding,” and when your competitor does it, you can file a tortious interference claim against them. Most of these cases require an employment contract to be successful in pursuit of damages.
The key lesson for employers is that, if you do not have employee contracts, you should. These are not non-compete agreements, nor are non-compete clauses legally enforceable, even if embedded within an employee contract. Talking to a professional employment law attorney is a place to start drafting an employee contract if you do not already have one. Even if you do have one, it is a good idea to have an employment law attorney take a fresh look at it to make sure it is still valid and enforceable under the ever-changing laws and statutes of California business law.
FAQs
Q: What Are No-Poaching Agreements in California?
A: No-poaching agreements, also called anti-competitive agreements, no-hire agreements, or non-solicitation agreements, are agreements between competitors, either verbal or written, promising that they will not contact each other’s employees with the intent of hiring them away from their competitor. They may also include such promises as to not match competitor offers or refrain from attempting to attract employees with enticing benefits packages.
Q: Are No-Hire Agreements Legal in California?
A: No-hire agreements are not valid or enforceable under California law. They are deemed a violation of public policy because they inhibit trade and the process of competition among competitors, which is essential to regulating affordable pricing and the natural law of supply and demand. An employer cannot stop a former employee from hiring their former coworkers who make the choice to leave their company on their own accord.
Q: Can You Sue a Competitor for Poaching Employees?
A: California does not allow companies to sue competitors for hiring their employees. Furthermore, the law also protects businesses’ rights to recruit qualified employees from their competitors, even if they’re actively employed by a competitor. Thus, poaching employees is, for the most part, a legal act in the state of California and not eligible for a legitimate claim.
Q: Can Companies Agree Not to Poach Employees?
A: Companies may agree not to poach each other’s employees, but such agreements or contracts, whether verbal or written, are useless because they aren’t enforceable under California state law, nor are they recognized in court. If an employer wishes to protect themselves from competitors hiring their employees, they need to have employment contracts with all their employees. These types of documents offer some protection in that, if the employee violates their contract by engaging in employment or some other act that contradicts their employment contract, their employer can hold them liable for breach of contract.
Obtaining Legal Counsel to Secure Your Employees
Any employee or business owner who is worried about their competitors poaching their employees, since it is legal in California to do so within reason, should speak with an employment law attorney. They can demonstrate the importance of using employee contracts and show how to protect their business from losing employees to the competition.
If you are a business owner who is seeking legal advice regarding your employee contract, or if you are an employer who is worried about the security of your employees, contact Fishman, Larsen & Callister. One of our experienced and well-versed legal professionals would love to speak with you about your situation. We can determine where our services can most adequately meet your needs for protecting your investment in your employees.