It's a RAID!

By Bordwin, Milton | Management Review, March 1999 | Go to article overview

It's a RAID!


Bordwin, Milton, Management Review


Legal Intelligence

Whatever you call the competitor who hires away a team of your employees-a pirate, a buccaneer or a poacher -the effect of the "raid" is the same: You may instantly lose access to a market, a technology or a business niche when the executives or employees who helped control that area jump ship for the competition. Legal or illegal? It all depends. In our capitalist democracy, companies are free to hire and fire people, while employees can choose where to work and when to quit. But as the business climate has be-come more dynamic and fast-moving, a company's intellectual capital has be-come more valuable than hard assets in staying ahead of the game. As a result, companies are becoming more aware of the risks of losing key people and teams. They're taking pre- ventive measures to minimize those risks, and they're also taking former em- ployees and competitors to court, charg-ing breach of contract, breach of fidu- ciary duty, disclosure of trade secrets and confidential information, tortious in-terference with contractual relationships, and more. The courts, in turn, react with judicial remedies.

PREVENTIVE STEPS

On the prevention side, employers now routinely require employees to give away their freedoms when they sign employment agreements and noncom-petition, nondisclosure or confidential-ity, and anti-solicitation clauses. All of these, by restricting the employees, also restrict competitors who would want to hire them away from their pre-sent jobs. And so contractually and judi-cially, an employee's freedom of action as well as a prospective employer's free-dom of action are restricted to protect the legitimate interests of the present employer. The ultimate arbiters, the courts, have laid down the law in raiding situa-tions in a number of ways: Courts will spell out the fiduciary obligations owed to one's employer, and judges and juries will decide what constitutes unfair com-petition methods, tortious interference with relationships and other wrongs. The hunting season has been restricted, and employers must learn to operate within those restrictions.

LARGE-SCALE RAIDING

In some instances, so many employees are hired away that it's as if the company sold an entire division-without getting paid for it. The headlines of the past five years offer many examples of the dis-putes that erupt from allegations of wholesale poaching: "Borland Sues Mi-crosoft on Hiring Practices" and "Arbitra- tion Panel Backs Josephthal's Charge of Raiding." Most employee-raiding cases are settled out of court. Without a doubt, these confidential, sealed settlements in-clude some money payment (or other consideration), just as if the hiring com-pany were paying for what it "ac-quired." This is probably what lies behind many other headlines, such as "VW 'Regrets' Feud with GM and Cites Movement on Accord," "Microsoft and Borland Quietly Resolve Dispute" or "Lo-tus Settles Suit Against Radnet CEO Over Hiring." Deutsche Bank's stated desire to break into the New York investment banking scene was repeatedly frustrated by the people-swapping that went on in the late '90s on Wall Street. As one bank- ing analyst put it, "There are zero exam-ples of European banks that have been able to build a franchise from within by buying people." The New York Times re- ported this in its July 1998 story head-lined, "First Boston Hires More Than 100 From Deutsche Bank." Perhaps it was raids like this that finally pushed Deutsche Bank to get into the New York market by buying Bankers Trust at the end of 1998. The scope of this phenomenon ex-tends to lawsuits like Heinz vs. Campbell Soups, Shell Oil vs. Unocal, Bayer AG vs. General Electric, Arthur D. Little vs. EDS, Ad-vanced Micro Devices vs. Hyundai Electron-ics America, and other companies, large and small. So where does our free, capitalist democracy draw the line? What will the law permit you to do-and to be done to you? What will it prohibit? …

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