South-Western Legal Studies in Business

Hiring Away At-Will Employees from a Competitor Can Involve a Tort
Description California supreme court held that when two lawyers left a law firm to create a competitor firm, and they took valuable materials from the firm and hired away a number of employees, the lawyers could be sued in tort for interference with an at-will employment relationship because the intent was to use improper methods of competition.
Topic Employment Law
Key Words Employment At-Will; Intentional Interference with Employment
C A S E   S U M M A R Y
Facts Two lawyers resigned from a law firm (Reeves) without prior notice. They established a competitor firm. In litigation between the firms, the two lawyers were found liable for $150,000 in damages, plus costs, for theft of trade secrets and other problems. One important issue on an appeal to the California high court was if the two lawyers could be liable for a tort of intentional interference with an at-will employment relationship? That is, when they created their own firm, they induced nine at-will employees of Reeves to quit and join them. Could there be tort liability for their action in this regard? The court of appeals said yes.
Decision

Affirmed. A former employee has the right to engage in a competitive business for himself and to enter into competition with his former employer, even for the business of his former employer, provided such competition is fairly and legally conducted. Although it is not ordinarily a tort to hire the employees of another for use in the hirer's business, immunity against liability is not retained if unfair methods are used in interfering in such relations. As with other torts of intentional interference with contractual relations or prospective economic advantage, the plaintiff must show that the defendant engaged in a wrongful act designed to disrupt an employment relationship. Here the two lawyers engaged in other wrongful acts against Reeves, such as taking client information; hiring away Reeves' employees was part of a scheme to take significant business away by unfair methods of competition.

Citation Reeves v. Hanlon, 17 Cal.Rptr.3d 289 (Sup. Ct., Calif., 2004)

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