Noncompete clauses pose issues for human resources

7 Oct

It pays for human resources to ask if a job candidate is under a noncompete agreement.

Human resources should be aware and wary of job candidates still under noncompete clauses. According to HRMorning.com, hiring someone still under one or not asking during the interview process could cost a company millions. A business could have the best employee management system to aid human resources in their work, but recruiters and HR need to be vigilant when asking job candidates necessary questions.

Costly mistakes
BioSense Webster, a cardiac medical device manufacturer owned by Johnson and Johnson, had to pay $1.2 million after knowingly hiring someone who worked for competitor St. Jude Medical, HRMorning.com reported.

When BioSense Webster hired Jose de Castro he was still under a three-year noncompete agreement with St. Jude Medical and he performed similar job duties with his new company. While the judge in the case subsequently threw out St. Jude's lawsuit, the judge ordered BioSense to pay attorney's fees, the cost St. Jude incurred from losing de Castro as well as lost profits.

Noncompetes becoming more commonplace
According the The Washington Post, noncompete agreements are becoming more prevalent in many different work sectors. They're no longer just used to keep executives and developers from jumping ship to another firm and potentially passing on proprietary information, The New York Times reported. Even fast-food chain Jimmy John's made news when it came to light that the company had employees sign two-year noncompete clauses, CNN Money reported. Employees agreed that they would not work at another sandwich store within three miles of one of the chain's restaurants.

"There has been a definite, significant rise in the use of noncompetes, and not only for high tech, not only for high-skilled knowledge positions," Orly Lobel, a professor at the University of San Diego School of Law, told The Times. "They've become pervasive and standard in many service industries."

More noncompete agreements means more lawsuits, The Washington Post noted. And this is why it's important for hiring managers and HR to ask potential employees about any clauses they signed with their former employers, HRMorning.com advised.

A company can be sued if they knew their employee was under a noncompete agreement with his or her old employer. Businesses can also be taken to court if their was a reasonable expectation that the person they hired was under an agreement but they failed to ask before hiring him or her, HRMorning.com stated.

Lawsuits on the rise
The number of court cases regarding noncompetes are on the rise, The Wall Street Journal reported. The percentage of lawsuits involving the breach rose by 61 percent from 2002 to 2012, according to research law firm Beck Reed Riden LLP did for the newspaper. Most noncompete clause suits are settled out of court, The Journal noted.

Some companies already decline to hiring candidates who are still locked in a clause from their former employers due to possible ligation and court costs. Many just don't want the headaches or worry and because of that it can keep some businesses from growing.

"We're around $8 million in revenue," James Keating, CEO for commercial insurance broker, Keating Group. "I'm confident we would be double our size if we didn't have that to deal with."

With noncompetes and lawsuits both on the rise, it pays for human resources and hiring managers to ask the right questions of candidates in job interviews. It can save a business both time and money by avoiding court or paying someone until the clause the ends. 

Even if human resources doesn't suspect a job candidate is under a noncompete agreement, they should ask anyway to keep their company safe.

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