5 Tips to Manage Competitor Confidential Information When Hiring the Ex-Employees of Your Competition

Non-competes are unenforceable in California, but non-disclosure agreements pertaining to a former employer’s confidential information are an entirely different story. It’s important to note that whenever your company hires a competitor’s ex-employees, there are legal risks that accompany that hire. These risks need to be balanced against the benefits of hiring someone with relevant in-industry experience and, if the scales tip in favor of hiring them, processes and policies need to be put in place to manage the risk.

In this blog post, we’ll outline:

5 Tips to Manage Confidential Information When Employees Join From Your Competitors

Tip 1: Talk to employees about their contractual obligations as part of your onboarding process. 

People agree to contractual terms they don’t understand (or even read) fairly regularly. In the context of your workplace, it’s important to talk to any new hires who have experience (as an employee, contractor, or intern) with your competitors to ensure they are alert to any contractual obligations to respect their former employer’s confidential information.

You should outline that your business does not want to know about any of their confidential information and provide examples of the types of confidential information you’re referring to. Consider the employee’s position and try to tailor the types of confidential information you outline to include the types you’d expect them to know.

It’s beneficial to explain why it’s important they keep that information confidential. You can outline that: 

• They may be personally sued for breach of contract if they disclose any confidential information, and 
• Their disclosure can impact your company’s reputation and risk management, too.  

Tip 2: Train your managers and executives on the importance of respecting the confidential information of prior employers. 

Your company’s supervisors and leaders should attend training that alerts them to the consequences of employees breaching their obligations to their former employers. Since they are (most likely) in a more senior position to your competitors’ ex-employees, it’s essential that they know not to ask about confidential information (as the more junior employee may disclose it for fear of risking their new job or reducing their chance of career advancement). 

It’s also important that your supervisors and managers recognize circumstances where an employee is sharing confidential information, so they can minimize the spread and/or use of that information. They can only do this if they understand what confidential information is and the importance of not using third-party confidential information so, again, training your team is key here. 

Tip 3: Request all new employees to sign an agreement that prohibits their use of third-party confidential information.

Any new hire should be asked to sign an agreement that expressly prohibits their use of third-party confidential information for any purpose in their new position. It’s important that all team members do this, not just those who formerly worked for your competitors. 

This policy should include provisions that outline potential consequences if they were to use third-party confidential information in the course of their employment. You should outline that employees may be disciplined for the use of third-party confidential information, including potentially being terminated for any breach. 

Tip 4: Check in with your new hires to be sure they aren’t using confidential information from prior employers. 

Your employees are (and should be) free to use the skills and take advantage of the experience they have in your industry, so it’s important that your internal processes aren’t too restrictive on innovation. However, it’s worthwhile checking in with your new hires from time to time to ensure they aren’t using confidential information from prior employers. Certain actions may also warrant a quick check-in, including if your new employee: 

• Implements new documents or processes. 
• Proposes new products or ways of doing things. 
• Uploads new documents or brings in paper copies of documents from a former employer. 

Tip 5: Don’t act on any confidential information supplied by your employees. 

While it is your employee’s responsibility to not breach their contractual obligations to their former employer, there are compelling reasons to not act on confidential information they supply in breach of their contractual obligations to a former employer. The reality is that your company is the party with the deepest pockets (between your corporate entity and your employee), so it is possible (even probable) that the former employer will sue your company as well as your new employee for breaches related to the disclosure of confidential information.  

If you’re uncertain about how to manage your risk when hiring your competitors’ employees, reach out. We’d love to help! And if you have any other burning questions, let us know. We’re always looking for more FAQs to answer in these 5 Tip Friday segments. 

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