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Ely
Ely, Counselor at Law
Category: Employment Law
Satisfied Customers: 101354
Experience:  Years of experience in running a medium sized law firm.
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Two of our employees used to work at a competing company.

Customer Question

Hi - Two of our employees used to work at a competing company. Our company just got a letter from the competing company notifying us that the employees signed a non-compete and non-solicit agreement with that company that limits them from: disclosing confidential and proprietary information, including with respect to current and prospective customers, pricing, contracts, employment practices, vendor info, etc; directly or indirectly soliciting current or prospective customers for 18 months from departure; interacting with current or prospective customers at all, even if they didn't solicit them; and from trying to persuade other employees directly or indirectly from switching to our company. It says that if the employees do any of these things, the competing company will take legal action against those employees and also against our company.One employee (Employee A) says he never signed this agreement, since his role was not in sales and only salespeople sign these agreements. The other (employee B) did sign it.Also, Employee A's girlfriend is actually moving to be in the same city as him, and is interviewing at our company. We would like to hire her. He says he didn't actively persuade her to join our company. She was just interested in interviewing here.A few questions - please respond to each individually below each question:1) Should we respond to the competing company's letter and, if so, with what information? E.g., should we let them know that Employee A did not sign the agreement and thus it is inapplicable to him (and that, if they believe he did so, to provide a copy)? What should we respond with respect to Employee B - should we say we are taking measures to ensure his compliance?2) Should we take measures at our company to ensure compliance with the agreement? If so, what measures?3) Is our company really even exposed to any legal liability here, as we did not sign the agreement (but rather our employees did)? Should we even get involved/respond?4) With respect to Employee A's girlfriend, are there any concerns with hiring her? If we do hire her (which we really want to asap), should we disclose this to the competing company? He says he never signed the agreement, and he also says he never persuaded her to join our company.Thank you.
Submitted: 1 year ago.
Category: Employment Law
Expert:  Ely replied 1 year ago.

Hello and welcome to JustAnswer. Please note: This is general information and is not legal advice. No specific course of action is proposed herein, and no attorney-client relationship or privilege is formed by speaking to an expert on this site. By continuing, you confirm that you understand and agree to these terms.

I am sorry to hear about this situation.

1) Should we respond to the competing company's letter and, if so, with what information? E.g., should we let them know that Employee A did not sign the agreement and thus it is inapplicable to him (and that, if they believe he did so, to provide a copy)? What should we respond with respect to Employee B - should we say we are taking measures to ensure his compliance?

It is up to your company whether to reply or not. At this time, this is merely two private entities talking. It would make sense to reply, however. Failing to reply may give an unintended idea that they are being ignored. If so, then your company (let us call it "ABC LLC") would want to request copies of both of the documents for A and B. If the other company (say "Prior LLC") fails to provide either, then as as ABC LLC is concerned, no such document exists.

If B did sign it, then if they are completely prohibited from working at this time in their position, then ABC LLC has a choice whether to fire B, or not. If B is not fired, Prior LLC can sue B for breach of the contract. It is very seldom that the prior company would also sue the current company, they mostly focus their relief on the former employee, although they can technically try to sue ABC LLC for "tortuous interference with contract."

2) Should we take measures at our company to ensure compliance with the agreement? If so, what measures?

The onus is on the ex employees to follow the contracts, not ABC LLC. ABC LLC did not sign anything. So if A & B do not follow the non-competes/disclosures, Prior LLC can sue them. Again, Prior LLC can also sue ABC LLC for "tortuous interference," but this would be unusual.

3) Is our company really even exposed to any legal liability here, as we did not sign the agreement (but rather our employees did)? Should we even get involved/respond?

See prior answers.

Also:

"It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract. (Lumley v. Gye (1853) 2 El. & Bl. 216 [118 Eng. Rep. 749]; Imperial Ice v. Rossier (1941) 18 Cal.2d 33 [112 P.2d 631], and cases cited.) The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." (See Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984)

By giving ABC LLC notice, Prior LLC may be asserting its rights to pursue ABC LLC for tortuous interference. But again, in the majority of claims, prior companies pursue the ex-employees, and not the current company.

4) With respect to Employee A's girlfriend, are there any concerns with hiring her? If we do hire her (which we really want to asap), should we disclose this to the competing company? He says he never signed the agreement, and he also says he never persuaded her to join our company.

No. Non-competes do not transfer to family/acquiescence/partners.

I hope this helps and clarifies. Gentle Reminder: Use the SEND or REPLY button to keep chatting, or please rate when finished. You may always ask follow ups at no charge after rating. Kindly rate my answer as one of the top three faces/stars and then SUBMIT, as this is how I get credit for my time with you. Rating my answer the bottom two faces/stars or failing to submit the rating does not give me credit and reflects poorly on me, even if my answer is correct. I work very hard to formulate an informative and honest answer for you; please reciprocate my good faith.

Customer: replied 1 year ago.
Thanks; very helpful. Just got new info in.I just learned Employee A DID sign the non-solicit and non-compete agreement (he was apparently mistaken in thinking he did not), and I just saw a copy of the agreement (as Prior LLC recently just sent both employees copies of their agreements). The agreement definitely has a provision against soliciting/inducing other employees of Prior LLC from leaving. But it sounds like partners are excluded from this? Is that California state law - is there some resource you can cite for that position, as management will want to know this.In terms of best practice, should we respond to Prior LLC given this new info and if so, what should we include? E.g. should just generally state that we are in receipt of their letter? That the employees are taking are measures to ensure they comply with the provisions of the agreement or that we are also taking such measures? (I wonder if we don't want to rep that we are taking measures bc we don't want to hold ourselves to then comply with that...)Also, does it make sense to disclose up front we will be hiring Employee A's girlfriend and that this does not violate the agreement since she is a partner? (just so they don't find out later and come after him/us?)Thank you!
Expert:  Ely replied 1 year ago.

You are most welcome.

Regardless of the position at ABC, LLC, ex-employees are still bound by any document that they signed with Prior, LLC. There is no exclusion for management/partnership/officers.

But before we go on, I may have to change my original answer. Please tell me specifically about their last jobs - did they:

-sell the business itself to someone else?

-dissolve a partnership?

-dissolve an LLC?

-is Prior LLC in a different state than CA?

This is not an answer, but an Information Request. I need this information to answer your question. Please reply, so I can answer your question. Thank you in advance.

Customer: replied 1 year ago.
It is a very large shipping/transportation/logistics company. Both worked in operations for them and now work in operations for us (working out the details of big shipping/logistics projects, connecting customers to motor carriers, etc.).Neither one is management and he business itself was not sold or dissolved.Both our company and the other company are incorporated in Delaware. But both have operations in California. Employees A and B worked for Prior LLC in CA and work for our company in CA. Employee A's girlfriend worked for Prior LLC in a different state (though I'm not sure which one), and would like to work for our company in CA.
Expert:  Ely replied 1 year ago.

Thank you.

For CA non-competes, see HERE. Most non-competes are not enforceable. However if they are incorporated in DE, then they may have DE was jurisdiction for the non-compete. See HERE.

So it depends on where they would file the case.

Again as for the girlfriend, it does not matter, she is not bound by it.

Gentle Reminder: Please, use the REPLY or SEND button to keep chatting, or rate positively and SUBMIT your rating when we are finished. You may always ask follow ups at no charge after rating.

Customer: replied 1 year ago.
Thanks for the info. We are looking for clear next steps in terms of whether or not to respond to the letter and, if so, what to say. Can you respond to this section of my earlier email?"In terms of best practice, should we respond to Prior LLC given this new info and if so, what should we include? E.g. should just generally state that we are in receipt of their letter? That the employees are taking are measures to ensure they comply with the provisions of the agreement or that we are also taking such measures? (I wonder if we don't want to rep that we are taking measures bc we don't want to hold ourselves to then comply with that...)Also, does it make sense to disclose up front we will be hiring Employee A's girlfriend and that this does not violate the agreement since she is a partner? (just so they don't find out later and come after him/us?)"
Expert:  Ely replied 1 year ago.
This depends on what you want to do. Do you want to keep the employees, or not? Or only keep them if you feel that you can argue that it somehow does not apply to them?
Finally, Prior LLC - is it BASED in DE or only incorporated there? Were is its word done? CA? DE? Somewhere else?
Customer: replied 1 year ago.
We want to keep the employees no matter what. We also want to hire the girlfriend.Prior LLC is incorporated in DE, but does business globally, including California. Our employees worked for them in CA.The non-compete agreement our employees signed with Prior LLC though specifies that Illinois la governs it.
Customer: replied 1 year ago.
A little more info in addition to response above. We want to keep the employees. We are just wondering if we should respond. And if so, if we should refer to any measures they or we are taking to address the issues in the non-compete/non-solicit and ensure compliance. We also want to know if we should disclose that we will be hiring the girlfriend. We're looking for best practice in the circumstances.
Expert:  Ely replied 1 year ago.

You can admit that you hired the girlfriend, or not. She is really not a part of this matter. She never signed the agreement. This is a non-issue.

If the non-competes states that Illinois law governs it, then it does. See HERE. So it goes by reasonability. So it is on a case by case basis. The company can:

1) Simply keep the employees. The risk is that the old company will sue for the breach under the non-compete, in which case one can use the affirmative defense that the non-compete is not reasonable in scope.

2) File for a declaratory judgment prior to engaging in this work . This is a type of case where one asks the Court to clarify the rights/duties of parties under the law for a contract. The positive is that this has one be the Plaintiff, so there is less risk of being seen liable as no work has yet been performed. The con is that if one loses and the court upholds the non-compete, one may be liable for the old company's legal fees.

3) The final option is negotiation, where one asks the old company to simply lift the non-compete.

Gentle Reminder: Please, use the REPLY or SEND button to keep chatting, or rate positively and SUBMIT your rating when we are finished. You may always ask follow ups at no charge after rating.

Customer: replied 1 year ago.
Thanks. The contract does not limit the employees from working with competing companies as a general matter. Just from certain behaviors (see the first explanation of the issue for what is prohibited). So I'm wondering if we should state in the letter that we or the employees are taking measures to comply with the non-compete.I know the girlfriend did not sign it; but Employee A's girlfriend currently works at Prior LLC and Employee signed the agreement, which prohibits him from persuading other individuals to leave Prior LLC. If there is an exclusion for partners, can you please provide a source (e.g. is that California law, Illinois law, etc.)?
Customer: replied 1 year ago.
Also, the girlfriend likely did also sign the same agreement with Prior LLC.
Expert:  Ely replied 1 year ago.

There is no specific verbiage for romantic partners. This language is simply non-existent. But I can tell you that if she is not a signatory to a party, she is not bound by anything. This is simple contract doctrine. It is not in statutory law because it is a "given."

But if she DID sign a non-compete with Prior, LLC, then she is bound by it.

Gentle Reminder: Please, use the REPLY or SEND button to keep chatting, or rate positively and SUBMIT your rating when we are finished. You may always ask follow ups at no charge after rating.

Expert:  Ely replied 1 year ago.
Hello again. I am checking in because you have not rated positively. To me this means you may have another question. Please let me know – I am simply touching base. Thanks!