Can the new employer be liable for an employee breaching the non-compete agreement with a former employer?

A note on this post: this blog post is part of our series, “Non-Compete Agreements: When are they valid, and when can the new employer be sued for an employee breach?” In this post we will discuss when non-compete agreements can affect the new employers. To learn how new employers can protect themselves from this liability, check back in the next few weeks for the next post in our series, How can the new employer protect itself from liability when an employee breaches a non-compete agreement with a former employer?

 

It is very unlikely that a new employer will be liable for an employee breaching a non-compete agreement with a former employer. Almost all of the lawsuits brought for breach of a non-compete agreement are only brought against the employee. However, under certain circumstances, it is possible. Therefore, it is important for employers to realize what kind of circumstances can give rise to liability.

The first thing to note is that for a new employer to be liable for an employee breaching a non-compete agreement, the non-compete agreement must be valid. Courts generally frown on non-compete agreements, so proving their validity can be tricky. For more information on when non-compete agreements are valid, check out our first post in this series, When is a non-compete agreement enforceable?

See:

 

The next thing to note is that there are a few ways that new employers can be sued for hiring an employee that is working for or has worked for a competitor. The former employer can allege either tortious interference with a contract or tortious interference with prospective business relations / prospective economic advantage. For our purposes, we will call these “interference with contract” and “interference with relations”. Which interference claim should be analyzed is based on the circumstances of the case and is a subject of some disagreement among Illinois courts, so it is best for an employer to prepare for both.

 

Interference with Contract

An employer that hires an employee after the employee signed a non-compete agreement with a competitor may be liable under interference with contract. The elements of interference with contract are:

  1. the existence of a valid and enforceable contract between the plaintiff and another;
  2. the defendant’s awareness of this contractual relation;
  3. the defendant’s intentional and unjustified inducement of a breach of the contract;
  4. a subsequent breach by the other, caused by the defendant’s wrongful conduct; and
  5. damages.

See:

 

The old employer has to prove all of these elements to win the lawsuit, and inducement in particular can be very difficult to show. The former employer must be able to point to more than timing as evidence that the new employer induced the employee to leave the former employer. It must also allege that the new employer had malicious intent. If the new employer does allege, and provide some evidence for, inducement, the court will not dismiss the case and may continue to trial to determine whether there was malice behind the inducement.

See:

 

For the defendant employer in these cases, the best situation is to avoid as many elements of the claim as possible. For more information on what a defendant employer can do under these circumstances, check back in a few weeks for the next post in our series, “How can the new employer protect itself from liability when an employee breaches a non-compete agreement with a former employer?” or contact an attorney to discuss the appropriate course of action.

 

Interference with Relationship

Because employment contracts are terminable at will, more and more Illinois courts are determining that there cannot be a claim for interference with contract in regards to employment-at-will contracts. These courts state that the employer must sue for interference with relationship. However, there are still some Illinois courts that have found the opposite. It is best to prepare for and attempt to avoid both claims.

See:

 

However, it is important to note that this claim requires the former employer to believe that there is or will be a relationship with the employee. If that relationship is already over (the employee has quit or was fired), there can be no interference with relationship claim.

The required elements of interference with relationship are:

  1. the former employer had reasonable expectation of entering into or continuing a valid business relationship with the employee;
  2. the new employer’s knowledge of the old employer’s expectancy;
  3. purposeful interference by the new employer;
  4. the new employer’s interference causing the former employer-employee relationship to terminate; and
  5. damages to the former employer.

Illinois courts recognize that purposeful interference is an incredibly important element in this interference claim as well.

See:

 

Overall, most employers are not as susceptible to this type of claim as the tortious interference with a contract claim. This claim requires that an employer interfere with a current or prospective relationship, not a contract or a previous relationship. Therefore, this claim typically only arises where the new employer recruited the employee while he or she was still working for the former employer.

 

Find This Helpful? Other Readers Also Like…

  1. Non-Compete Agreements: What are they, and when are they enforceable?
  2. How can the new employer protect itself from liability when an employee breaches a non-compete agreement with a former employer?
  3. What are the possible damages for breach of non-compete agreements?
  4. What Should Employers Do to Make Non-Competes Enforceable?
2019-05-09T11:36:00-05:00February 1st, 2014|Employers, Employment Issues, Independent contractors|