Small Business Tips

Small Business & Employee Poaching

Victoria Morrison

Poaching employees have been a common practice for decades. Despite the colourful moniker, "poaching" is more akin to active recruiting. In tight labour markets and high-growth industries, it's inevitable. More importantly, is the practice of poaching employees legal and ethical, and how does it impact your small businesses?

What is the poaching of employees?

According to this definition of employee poaching on money-zine.com, "employee poaching is the practice of aggressively recruiting talented employees from competitors." Scouting competitors for employees make sense since they too work within your industry.  Employee raiding isn't illegal. Supply and demand drive the labour market, whereas compensation and benefits drive the decisions of employees and employers.  But competitors aren't the only ones poaching employees. Companies often hire their suppliers' employees. Could this be a form of friendly poaching? Either way, the result is the same when you lose a valuable employee.  Consulting firms (advertising, PR, marketing, engineering, accounting) know this all too well. For example, a consultant who does a great job for her firm's client gets an offer to join the client's team.  Sometimes it's a touchy situation. As the firm's owner, you hope the client asks before trying to hire your employee. But if your employee was already thinking about a move, ending up at a key client rather than a competitor is a good outcome.  If she went to work for another consulting firm, her clients might decide to follow her of their own accord. Hopefully, your handling of the situation strengthens your relationship and sets you up for more work from the client.

Our fast-paced labour market makes employee poaching inevitable

It's no mystery, people are essential to most small businesses. You count on them, and you know how tough it is to find good people.  As the leader of a business, you sometimes resolve conflicts between employees¬†or deal with "surprises". Like the time you left for a long overdue vacation. You couldn't have imagined your trusted second-in-command quitting the next day, at the peak of your big holiday rush. Or spending your dream vacation in a hotel room fixing problems back home.  As a small business owner, you've probably dealt with similar situations. The labour market is competitive. Employee poaching is a normal and instinctive aspect of recruiting people. Which is why it's more likely that your methods, behaviour and lack of caution when recruiting could lead to legal or ethical issues.

Is employee poaching illegal?

In Workopolis' guide¬†to employee poaching, Toronto lawyer Walter Stasyshyn explains that a written contract from a previous employer is binding and could prevent a potential employee from working for you. Both employers and employees need to understand the terms of such an agreement.  On the other hand, when there is no written agreement, the likelihood of legal problems is greatly reduced. But it's never totally gone. If an employee uses a former employer's confidential information, it's illegal in all circumstances. More on that below.  The law does not prevent aggressively recruiting or poaching employees, whether they work for competitors or not. Myriam Yosowich writes about legal issues for Thomson Reuters' FindLaw site. In this article on employee poaching, she reiterates the widely held view that "In many circumstances employee poaching is lawful. Where a recruiter is only looking for the employee's particular skills when recruiting that employee then there usually isn't a problem."

Not everyone plays nice

Actions are more likely to lead to problems when a former employee or his new employer behave illegally or unethically:

     
  • For example, you hire someone who invented a patented device when they worked for a competitor. You want to improve your product's design using that employee's expertise, but you know the technology he invented is protected by the competitor's patent. Can you afford to defend a patent lawsuit down the road?
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  • A new employee recruits several former colleagues from a competitor. This common example of employee poaching can lead to legal issues if the former employer's agreement prevents staff solicitation. A small business owner's exposure to potential legal problems depends on whether employees recruited have contractual obligations.
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  • A potential employee has proprietary information from a competitor: customer lists, financial data, or designs and trade secrets. You hire that person because of that data, or the employee plans to use it (with or without your knowledge). This can lead to claims of theft of customer lists and intellectual property, copyright violations, breach of employment contracts, etc.
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  • A business recruits a competitor's employees to get access to private information, relationships with key customers and stakeholders, specific supplier deals, bids on large contracts or information that could harm a competitor. As a small business owner, you need to be cautious. This private information could be viewed by a court as a significant asset of the competitor's company. If the competitor decided to sue, your company, its owners and any former employees with contractual obligations could be targeted.

Non-compete agreements

You should review any potential employee's non-competition agreement before hiring. A written contract could restrict them from performing the same job function (such as sales), for a specific period, in a specific region.  However, Canadian courts don't seem intent on upholding restrictive non-compete agreements that are far-reaching, unreasonable and that prevent someone from making a living in their industry. "The non-competition clause is not easily enforceable, because restricting or prohibiting someone from working in their chosen field interferes with their liberty, their rights and restricts competition", adds Yosowich.

Employee loyalty

Finally, there's loyalty. Employees need to be loyal to former employers. Quebec legal education site educaloi explains that even when there's no binding agreement, a former employee has to remain loyal. She must protect (not use) an employer's confidential information (described above). This duty of loyalty continues after the employee's departure.  In her article, Poaching employees can net big legal trouble, Findlaw author Liz Bernier covers the steps you can take to make sure hiring potential employees won't lead to legal problems. Check it out to find out more about protecting your interests as a business owner, and the legal issues associated with poaching employees. Consult with an employment lawyer if you have any doubts. You can find out if your business insurance covers these types of risk.  

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Tech giants engage in illegal collusion to stop employee poaching

Giant tech companies are old hands at poaching each other's employees. In one high-profile case, Silicon Valley heavyweights (including Apple, Google and Intel) secretly colluded to prevent bidding up salaries and stop the poaching of each other's employees.  They were sued by the US Justice Department in a 2010 antitrust action. The settlement for thousands of employees cost the companies involved over $400 million USD.  Although the complaint centred around the disclosure of salary offers between employers, participating employees' main concern was the limiting effect the secret "no poaching" agreement had on their salaries. The colluding companies' actions effectively prevented a free labour market. It was price fixing for salaries!

Is employee poaching ethical?

If all is fair in love and war, and business, then trying to hire a competitor's employee should be acceptable, right?

Moral issues - is employee poaching unethical?

The stakes in business are higher than ever. Change is constant and small businesses need to adapt quickly. Hiring the right talent is crucial to survive and thrive. Unlike larger companies, small businesses can't take months to fill a position. They need to recruit quickly, and sometimes aggressively.  The best way to find qualified people who can hit the ground running is to scout direct competitors. But despite what the term suggests, "poaching" isn't unethical. It's more likely the associated behaviour that can be unethical or even illegal.

How to prevent employee poaching

There are ways to curb losing human resources. It's frustrating when it happens to your employees and your business, and you may find yourself poaching competitors yourself. But do you wonder if stealing employees is always the best solution? What does your experience tell you?  How many small businesses hire a potential employee only because they work for a competitor? You might spend time and money training someone, only to find out they aren't up to the task. Maybe you should be putting more focus on employee retention and satisfaction.  Globe and Mail business writer Bryan Borzykowski suggests what employers can do to retain employees and limit poaching. One recommendation is to cover the cost of formal education or training, a benefit that employees value highly.

Proven methods retaining employees

Companies can also try to limit employee poaching in other ways:

     
  • They can use a reasonable non-competition agreement for certain new hires.
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  • They can offer incentives and use retention strategies: bonuses, profit-sharing and company share options, that few small companies offer. The cost of recruiting and training several key employees can far outweigh the cost of giving people small ownership stakes spread out over several years. Employees are usually excited about becoming owners, and more motivated to perform over the long term.
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  • Make sure you have a better than average benefits plan. Again, the difference in cost could be minimal, but you might gain employee loyalty.
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  • Foster a positive work environment and culture. Even small businesses need to pay attention to what makes employees feel happy to go to work, and what boosts or lowers morale. With limited resources, you can still try things to keep employees happy. Painting the office, bringing in treats occasionally, replacing old furniture over time, or hosting BBQ lunches in the summer, might go a long way to boost company morale.
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  • Frequent and open communication should be natural in a small business environment. It also can make employees feel more valued and give them a sense of purpose.
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  • Try to anticipate how key employees feel about their jobs and be proactive in discussing and solving issues. If you hire a senior-level employee, listen to their advice.
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  • Some employees will be approached by recruiters or might be looking for a change. Consider advising your employees that you're happy to review any offers they receive. That way, if staff who don't want to leave are offered higher compensation by competitors, you'll have a chance to retain them.