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HR Magazine, February 2001: Recruiting from the Competition
 

By Bill Leonard  2/1/2001
 

HR Magazine, February 2001Vol. 46, No. 2

When interviewing applicants who work for competitors, focus on their skills and resist the temptation to mine for information about your rivals' operations.

As most human resource professionals know, the best job candidates usually are those with several years of work experience and sound basic skills—preferably acquired while on the job. But people don’t enter the workforce magically possessing the experience and job skills that employers want.

Because employers know that the best-qualified applicants will come directly from competitors, recruiting and hiring employees away from the competition becomes a necessity in an ultra-tight labor market. And necessity is the mother of inventive and sometimes controversial business practices.

Recruiting and hiring from your competitors is probably as old as business itself. But what is new—and a hot topic among employers—is how to attract and retain qualified candidates in a highly competitive labor market while also preventing their own intellectual capital from winding up in the hands of competitors.

“Within a free market economy such as ours there exists the privilege to compete, and just about everything and everyone is fair game when you have a level playing field,” says Charlie Edwards, head of the employment and labor law practice in the Raleigh office of the North Carolina-based law firm Womble Carlyle Sandridge and Rice.

“When a company receives an unfair advantage, or what is perceived to be an advantage, over their competitors, there [are] certain remedies such as noncompete and confidentiality agreements that do work to some extent.”

Edwards says that the highly competitive market for talent means more employers are using noncompete or nondisclosure agreements, which in turn has created a tense atmosphere among competing employers where litigation has become more common.

The Biggest Recruiting Mistake

The No. 1 mistake that employers make when hiring an employee from a rival company is not checking to see if the applicant is bound by a noncompete or nondisclosure agreement, according to Edwards, who counsels employers on recruiting and hiring from competitors.

He says an employer always should ask a job applicant about these agreements. If there is any question about whether the candidate has signed one, the potential employer should ask for proof, Edwards says. “Employees tend to forget that they have signed these agreements. But if a noncompete agreement exists, then their current employer will have it on file and must provide a copy to the employee.”

Noncompete agreements are not 100 percent ironclad. There can be ways around most agreements, Edwards says, and the competitive labor market means employers are willing to take risks and hire talented and highly skilled workers even if those employees are bound by an agreement.

“Today’s labor market has totally changed the attitudes of employers from 10 or 15 years ago,” says Edwards. “It used to be that an employer wouldn’t want to go near an applicant who had signed a noncompete agreement. Now the attitude is: ‘How can we get around this?’”

Most noncompete agreements cannot address every situation or employer, according to Edwards. An agreement that is too broad is probably ineffectual because it’s impossible to cover every scenario, and it can appear that an employer is trying to prevent a former employee from making a living. An agreement that is too narrow is easy to sidestep by changing a job title or altering certain job duties, Edwards adds.

“Probably the best and most effective noncompete agreements are ones that don’t bar former employees from working for a competitor but have some type of financial penalty attached to them—such as taking away stock options or bonus money if an employee takes a job with a competitor,” says Edwards.

Enforcement of noncompete agreements also differs from state to state. In California, the only state that bars noncompete agreements, employers have to rely on other means, such as nondisclosure agreements, to protect their confidential information when a competitor hires away employees.

Don’t Permit Loose Lips

“I’d say 99 percent of employers around here use some form of nondisclosure agreement,” says Bob LoPresto, president of the high-tech division of the executive search firm Rusher Loscavio & LoPresto in Palo Alto, Calif. “Most people are honest and want to be aboveboard and will hold to their agreements. In this day and age of mergers and acquisitions you just don’t want to burn any bridges, because even if you go to a rival company, within a couple of years you could be right back working with the same people again.”

Applicants who have signed nondisclosure agreements with their old or current employer are legally bound not to talk about that employer for a set period of time—usually two years—after severing their employment. Most high-tech companies, like Silicon Graphics Inc. (SGI) of Mountain View, Calif., require all their employees to sign nondisclosure agreements when they are hired.

“It’s a nice insurance policy, and we’ve rarely had to go after a former employee for breaking an agreement,” says David Windley, vice president of HR for SGI. “On the flip side, we are also aware that some applicants might be bound by similar arrangements, so we never ask any questions that might violate their nondisclosure agreements.”

LoPresto and Windley agree that some employers try to pry information about their competitors from applicants, but they say the practice largely is frowned upon and doesn’t happen very often.

“The value of the kind of information you might get during an interview is highly questionable and probably nothing you don’t already know,” Windley says. “And we would never ask any questions during interviews that might put the applicant in an awkward position. It just isn’t fair.”

Interviews should center on the skills and abilities of the individual, and not on how the work was performed at another company, recommends Reginna K. Burns, SPHR, HR director for AT&T Global Services in Basking Ridge, N.J.

Curious Candidates

Curiosity during a job interview involving a competitor works both ways. Not only are line managers and rank-and-file workers naturally inclined to want to “talk shop” with the applicant, but the job-seeker also may be inappropriately interested in the nuts-and-bolts operations of the company doing the recruiting.

Burns says that if the job applicant wants overly specific information about the interviewing organization early during the interview process, recruiters should be wary. For example, if the applicant asks about the recruiting organization’s salary structure, the interviewer should simply say, “We pay competitive to market.”

Some recruiting experts say that to guard against candidates’ returning to their workplaces with proprietary information gathered during job interviews or inadvertently revealing confidential information about their current or former employers, the recruiter should require applicants to sign a nondisclosure agreement.

“It’s part of my employment application, which everyone must fill out before they actually interview with our company,” explains Claudine Antonino, HR manager with Photobit Corp., a Pasadena, Calif., semiconductor company that designs and develops digital imaging sensors. “And that means VPs, senior VPs, production professionals—everyone. We really don’t want to be held responsible for information that might be stolen from their previous employer.”

Antonino says that when Photobit brings in a competitor’s employee for a job interview, she recommends that Photobit’s workers “turn things over on their desks, clean off all white boards and make sure that they don’t meet in public places when discussing technical issues. We also limit the questions we ask of the candidate. We don’t want to pry out information on the competitor or be held responsible for the information we receive from the candidate.”

Mind the Legal Limits

All employers—and their employees—should know about the legal pitfalls, particularly regarding antitrust and patent issues, when recruiting and interviewing applicants from a competing company, cautions Rodney H. Glover, managing partner in the Washington, D.C., office of the law firm Gardner, Carton & Douglas. If the candidate holds a high-level position in his or her organization, Glover recommends that the interviewing employer consult with legal counsel to clarify what information and topics should be off-limits.

Glover says he has heard interviewers ask questions that are “just flat-out inappropriate, not just from an antitrust perspective but from a Title VII [equal employment opportunity] or an age case [perspective]. If people don’t know what questions to ask, it’s human nature sometimes to ask them.”

Glover says he hasn’t seen many instances where interviewers appeared to be more interested in a competitor’s trade secrets than in whether the applicant could do the job in question.

Nonetheless, he says, when interviewers know that a job applicant is working for a competitor, “human nature being what it is, they’re curious. They want to know how things are being handled at the competitor’s shop. So they ask a lot of questions. Sometimes they’re harmless, but sometimes they’re not. Pricing structures and things like that are not questions that you want to be asking of one of your competitor’s employees, regardless of how high up they might be.”

No Targeting a Competitor

Targeting the workforce of a specific company could violate antitrust laws, so most companies will never admit doing it. But antitrust law is somewhat vague on recruiting issues, according to Michael McNeal, vice president of business development for PureCarbon.com of Scotts Valley, Calif.

McNeal is well acquainted with how enticing it is for a recruiter to target a competitor’s workforce. Before joining PureCarbon.com when it was founded as Intralect in November 1999, McNeal was senior director of corporate employment for Cisco Systems, which was involved in a number of mergers and acquisitions with competing companies.

He says that recruiters “can definitely target market segments”—and often do so with vigor. “What you can’t do is try to hire away large numbers of individuals from the same company with the intent to put them out of business,” says McNeal, whose current employer is an HR-solutions application service provider.

Proving that a competitor is trying to drive one’s organization out of business through recruiting raids is “incredibly” difficult, McNeal adds. But if a company feels threatened, it will protect itself through litigation.

For example, in 1997 software manufacturer Borland International Inc. filed an antitrust lawsuit alleging that Microsoft Inc. specifically targeted and hired programmers from Borland’s staff.

The suit claimed Microsoft deliberately attempted to force Borland out of business. Attorneys for Borland alleged that, since 1994, Microsoft had hired 34 programmers from Borland by offering some of them signing bonuses of up to $1.5 million. Microsoft and Borland later settled the suit for an undisclosed amount.

While the best-qualified candidates often will be found at the competition, employers are advised to seek them out because of their experience and job skills, not as a tactic to weaken, or obtain information about, a rival.

“We don’t target specific competitors and never will,” says SGI’s Windley. “The name of the game here is finding and hiring the best available candidates.”

According to Windley, SGI uses third-party sourcing and executive search firms to identify potential candidates. Sourcing companies provide lists of potential applicants to their clients such as SGI, and then the corporate recruiters take over and do the rest.

“The sourcing firms may have several different companies that they like to target for specific job skills and work experience but that’s because these companies have a reputation for hiring good employees,” Windley says. “Once we receive a list of potential candidates, we will examine it carefully to make sure they have the right qualifications.”

After SGI recruiters have identified the candidates they want, Windley says, every reasonable effort is made to bring the applicant on board. And all the HR professionals and attorneys interviewed for this article say the best approach is to be fair and reasonable. Overzealous recruiting tactics can backfire and leave a company in a sticky legal situation.

According to PureCarbon.com’s McNeal, corporate attorneys sometimes will threaten to hold recruiters—and the companies they represent—liable for going after trade secrets and inducing employees to violate nondisclosure agreements. Although allegations of theft of intellectual capital and violations of nondisclosure agreements are tough for attorneys to argue, they can have the intended effect of nipping a raid in the bud. Individual recruiters, McNeal explains, often “feel that they potentially have a personal liability, even if they’re going to be indemnified by their organizations.”

Bill Leonard is senior writer for HR Magazine.

Robert W. Thompson, an Annapolis, Md.-based freelance writer and editor who specializes in HR-related topics, contributed to this article.

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