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Posted August 15th, 2017 in Top Stories, Legal Insights with Tags , , ,

The Questionable Non-Compete: How to Hire Someone but Avoid a Tortious Interference Claim

The Scenario

Your company has a great applicant for a job opening, Jane, but you learn during the interview process that Jane signed a non-compete agreement with her current employer. You can quickly spot some reasons why the non-compete is unenforceable. Perhaps Jane told you she did not receive anything in exchange for signing the agreement; perhaps the restrictions are obviously too broad; or perhaps you do not think your company competes with Jane’s current employer. You acknowledge there is some risk in hiring Jane, though, including that her current employer may sue Jane for breaching the contract and your company for interfering with her contract—a tortious interference claim. So, now what? Setting aside Jane and her own legal risks, what specific steps should you take to set up your best defense to a claim that your company interfered with Jane’s contract? Read on.

What is Tortious Interference?

A tortious interference claim generally requires proof that the interference be without justification. In Minnesota and other jurisdictions, one way for a company to establish a “justification” defense is to show it reasonably relied on advice from counsel that the contract was unenforceable, or that your conduct would not be a breach of the contract. In other words, if an attorney reviewed the restrictive covenant at issue, told you it was okay to hire the applicant, and you reasonably relied on that advice, then you are safe. In fact, at least in Minnesota, that advice can even be wrong, as long as your reliance on it was reasonable.

That is what the law says. Actually proving your defense with admissible evidence is the key, though. You will want to consider several issues in doing so.

Consideration #1: Selecting Counsel

You will need to select counsel to provide the advice regarding Jane’s restrictive covenant. You have several possibilities.

  • In-House Counsel. Your company may employ a jack-of-all-trades general counsel, or may have in-house attorneys who have experience with restrictive covenants. Using someone with more legal familiarity within this area is preferred. However, using in-house counsel is risky since that advice – offered by someone on the company payroll – may be viewed as biased.
  • Primary Outside Counsel. Your company may have an outside employment attorney you regularly use for legal advice. You could ask this attorney to provide counsel on Jane’s agreement, but you likely will want this attorney (assuming he or she knows non-compete law) to defend you if Jane’s former employer sues the company for hiring Jane. Because the advice you get about Jane’s agreement would be key evidence in a lawsuit against your company, it may be better for you to hire other outside counsel to advise on Jane’s agreement. Creating separation in those roles may give more credence to the advice. In addition, if the court concludes the advice is wrong (remember, “wrong but reasonable advice” may still be a good defense), you probably do not want the “bad” attorney to be the one defending you in court.
  • Other Outside Counsel. Given the issues and limitations with other options, there may be good reasons to use a separate attorney to opine that the restrictive covenant is unenforceable. Usually your primary outside counsel will have contacts with trustworthy attorneys who can provide this service.

Consideration #2: Proving Reasonable Reliance

Relatedly, you will need to prove your reliance on the lawyer’s advice was reasonable.

  • The attorney who claims the covenant is unenforceable must be factually equipped to offer the advice. This obviously means you providing the attorney the restrictive covenant agreement, but also might include the offer letter, job description, and the opportunity to interview the prospective manager and possibly the applicant, depending on the circumstances. It is also best to show you received advice from an attorney you actually believe is experienced in non-compete law.
  • You also want to show you acted in good-faith reliance on the advice. If the attorney suggests, for example, that to minimize risk you should place some voluntarily restrictions around the new employee’s duties, you should follow that advice.

Consideration #3: Selecting the Witnesses

You must decide who will testify about the defense in deposition and at trial. This may or may not be the same person who provided the advice. Again, you have several options.

  • Company Representative. The advice from the lawyer has to be given to someone, and typically that will be a business person or human resources representative at your company. That company representative could testify about the advice received from counsel. (The testimony would not be hearsay since it is offered to show reliance, not for the truth of the advice provided.) If there is a company representative who will make a good witness, then this is a good choice.
  • In-House Counsel. Most in-house counsel do not relish the opportunity to be deposed or cross-examined. Putting them on the stand creates a host of privilege waiver issues that are best avoided, if possible. Nonetheless, if you are confident your in-house counsel can avoid inadvertent waiver, this is an option, though the testimony may be viewed as biased toward the company.
  • Primary Outside Counsel. We mention this for completeness, but the attorney defending you in court cannot also be a witness, so this is not a realistic possibility.
  • Other Outside Counsel. Using the separate attorney who provided the advice to also testify about it is a good option. You can present the attorney as an independent professional who is dispassionately opining on a contract. Also, if the advice was wrong, the lawyer can be the witness who looks bad, rather that the company representative or in-house counsel.

Consideration #4: Proving the Advice Happened

You will need to prove the review and advice actually happened. You can rely on testimony alone, but typically, you also will want to offer up for proof the written exchange between you and the attorney showing you shared all the relevant materials to the attorney for his or her review, as well as the attorney’s billing records. There are several points to consider.

  • Bills sent from lawyer to client are protected from disclosure under the attorney-client privilege to the extent they reflect the specific nature of the legal services performed. If you are using billing records to prove certain work was done, you need to show the nature of the legal services performed. In that way, you will be waiving privilege. Thus, you must take care to create billing records that do not waive privilege more broadly than necessary to prove the justification.
  • Juries hate seeing big, black redaction blocks on an exhibit. They inevitably are curious about what is behind the black, and why it is hidden. Thus, you should ask your counsel to create a billing record for the justification defense that stands alone and does not need to be revised, redacted, or cleaned up in order to be used in the litigation. If you elect to use your primary attorney to provide the advice, then the best practice is to create a separate billing matter for that advice work and have it invoiced separately than the underlying matter. If you elect to use separate counsel, then creating a standalone billing document is easier.

Consideration #5: Proving the Substance of Advice

Finally, you should decide how you ultimately want to prove the substance of the advice. Minnesota courts take a case-by-case approach to this question and have held the advice can be either oral or written. On one hand, it is generally better to have written documentation of something you are trying to prove. On the other hand, a written memorandum from the attorney advising that the restrictive covenant is unenforceable provides an easy target for opposing counsel to study, poke holes in, and pick apart. If you do go the written route, as with the billing records, the primary goal should be to create a clean document that can best be used as a trial exhibit.

By taking these actions with future litigation squarely in mind, your company can create the best evidence to support a justification defense when hiring a new employee with a questionable non-compete.

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