Raiders of Talent
by Jeff Brown

This month I will address some legal issues that have a bearing on both candidates and clients.  This is always a “dicey “ subject, particularly given the fact that I am not an attorney.  However, I am an elected member of the Georgia House of Representatives and therefore  have an appreciation for the complexity of law, the proliferation of laws (we just passed approximately 350 laws in a 40 day session), the fact that we have federal laws but often very different laws among the 50 states and the latitude given to judges, juries and bureaucrats to interpret the laws.  All of that said, this country has done exceedingly well for a number of reasons; one of which is the rule of law.

We recently counseled with a client who is on the receiving end of a competitor raiding his sales force.  They are using signing bonuses, guaranteed draws, trips, etc. that are way beyond anything that we have seen and quite frankly beyond my comprehension as to how the raiding company can economically justify such. 

Interestingly the legal counsel of our client as well our legal counsel both advised that we need to be very careful about trying to intervene in this because it could be deemed tortuous interference.  This means that if we maliciously or improperly interfered with contractual relationships.  (the competitor is contracting with these people) we could  very well be liable.

There are restrictions about soliciting  the employees of competitors.  There must be no lying, no monopoly that is created and it is done to advance the business of the hiring company versus retaliation.  It’s the retaliation that can create torturous interference.  If we or our client acted with malice, sowed seeds of discord or injured the courts have had a history of rather liberally construing this in favor of the plaintiff.

One of the interesting aspects of this issue is that the contract these people signed with the competitor of our client details this large upfront bonus but says that if this contract was to be terminated voluntarily or involuntarily the signing bonus would be repayable to the company along with any legal fees that might be incurred.  This is a caution to people considering such offers.  However, our attorney advised that the courts may not uphold this stipulation and instead rule in favor of the person originally receiving the bonus because it is too punitive and there is no proof of  liquidated damages.

Yet another interesting aspect of this situation is that the people being hired are being put on a subcontract basis.  IRS has long had a 20 question test to determine whether indeed someone is legally a subcontractor (this means instead of a W-2 you issue a 1099 with no deductions for state, federal or FICA taxes). IRS estimates that they lose billions of dollars in tax revenues each year due to misclassification of some as an independent contractor (in essences this means they are self employed) versus employee.  If IRS deems he/she was incorrectly classed as subcontractor the company is liable for back taxes and penalties.  Also the Ninth Circuit Court of Appeals recently ruled against a large US computer company.  The ruling said these people were in fact common law employees. The computer company had to pay millions of dollars for the value of stock options denied these people.

As referenced above we have legal counsel that we periodically consult with if there is any question about a pending action.  In our 19 years of being in business we have never sued anybody including the collection of monies due us nor have we ever been sued.  Basically we follow the Golden Rule or as Rotarians say, “Is it fair to all involved”?  This is a gratifying way to run a company, much cheaper in the end and fairer to everybody versus inviting law suits because of the way you conduct yourself and/or being litigious.

We invite your comments.  Long term the value of the Comprehensive Search eNewsletter for our readers will be increased with a dialogue among us.