Employment Law

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Potential Tort Liability for Recruiting At-Will Employees
Everett F. Meiners, Partner and Alan D. Weinfeld, Associate, Parker Milliken Clark O’Hara & Samuelian, Los Angeles. Everett Meiners is a contributing author to Advising California Employers published by CEB.

A recent California Supreme Court decision may significantly impact the recruitment of at-will employees from their competitors. In Reeves v Hanlon, (2004) 33 Cal. 4th 1140, the California Supreme Court held that an employer is liable in tort for engaging in an "independent wrongful act" that induces an at-will employee to leave another employer.

Previously, it was generally considered that an employer could solicit an at-will employee from another employer without potential tort liability. The holding in Reeves may signal a departure from previous decisions which tended to favor the policy of workforce mobility over the business interests of former employers. More importantly, it expands the potential liability of employers who recruit and hire at-will employees from other firms.

The extent that Reeves expanded this liability is not clear because the California Supreme Court did not define the conduct which is sufficient to constitute an "independent wrongful act." Given this uncertainty, employers should be cautious when recruiting employees currently employed at other firms.

The Facts - Reeves v Hanlon
Daniel Hanlon and Colin Greene resigned as attorneys from the law firm established by Robert Reeves without notice and formed their own firm. During the five months leading up to their resignation, they accessed their firm’s password-protected computer database, printing out confidential information on 2,200 clients and creating discontent among the firm’s employees. Just before leaving, Hanlon and Greene erased extensive computer files containing client documents and forms. On the evening after their resignation, they personally solicited the firm’s key employees. Over the next 60 days, the Reeves firm lost nine employees, six of whom joined Hanlon and Greene. In addition, the Hanlon firm also solicited the former firm’s clients, picking up 144 of them over the next year.

The Lawsuit
Reeves sued Hanlon and Greene for intentional interference with contractual relationships, interference with prospective business opportunity, conspiracy to interfere with prospective economic advantage, misappropriation of confidential information in violation of the Uniform Trade Secrets Act (UTSA), unauthorized use of a corporate car, and destruction of corporate property.

The Supreme Court Decision
The California Supreme Court ruled that Hanlon and Greene could be liable under an interference theory for inducing at will employees to quit. It held that where the defendant engaged in an independently wrongful act—an act that is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard—that induced an at-will employee to leave the plaintiff, the defendants could be liable for intentional interference.

The Supreme Court specifically rejected the holding in GAB Business Services, Inc. v Lindsey & Newsom Claim Services, Inc., (2000) 83 CA4th 409, which stated that an employer may never maintain a cause of action against a competitor for intentional interference with its at-will employment relations. The Supreme Court upheld the trial court’s award of damages for the cost of replacing Reeves’ employees who were successfully recruited by Hanlon and Greene. Although there was no question that Hanlon and Greene engaged in independent wrongful conduct, e.g. "intentionally erasing extensive computer files in plaintiffs’ computer server containing client documents and form files used by plaintiffs," that conduct did not relate directly to hiring the Reeves’ at-will employees. However, according to the Reeves decision, it did not matter that the wrongful conduct did not relate directly to the solicitation of Reeves’ employees. The Hanlon firm had engaged in wrongful conduct which disrupted the operations of the firm and therefore their hiring of the at-will employees was also held to be wrongful.

The Impact of Reeves
The California Supreme Court stated that its ruling would guard against unlawful methods of competition in the job market while at the same time respecting the rights of at-will employees to pursue better opportunities and employers to compete for talented workers. The Court doubted that the ruling would lead to innumerable lawsuits or chill employment opportunities. It emphasized that one commits no actionable wrong by merely soliciting or hiring the at-will employee of another.

Caution Recommended
Despite this assurance by the Supreme Court, employers should still be concerned about the case’s impact on their recruiting practices. Any "independent wrongful act" that is related to the decision of an at-will employee to leave a competitor can expose an employer to tort liability and punitive damages. The Supreme Court provided little guidance to employers as to how an "independent wrongful act" becomes sufficient to impose liability. Although the court stated that the unlawful action must "induce" the at-will employee to leave, there was no reference made to the evidence that showed the employees were "induced" to leave by the wrongful activities. It suggested that an act that falls far short of being tortious activity and is merely "unethical," might be enough. The act might even be an amorphous "unfair business practice."

Because of this uncertainty, employers must exercise additional caution in recruiting to ensure that they do not engage in any "independent wrongful conduct." They should distribute lists of specific prohibited conduct to all employees involved in recruiting. Among other things, these lists should specifically prohibit the making of any misleading or defamatory statements about the current employer of the individuals they are recruiting. Before making an offer to a new recruit, employers should attempt to determine if the recruit has engaged in any potential wrongful conduct. Employers should also be scrupulous in guarding against overzealous recruiters who might engage in wrongful conduct attributable to the employer. Finally, employers should centralize and coordinate their recruiting process so that one department, or individual, knows of all of their recruiting efforts.

Conclusion
Until California courts more clearly define what constitutes an "independent wrongful act," Reeves is likely to significantly impact the practice of the recruitment of at will-employees from competitors. It will be up to future courts to determine whether the "independent wrongful act" must be something as egregious as what Greene and Hanlon did, or can be something as minor as an unfair business practice. For now, employers should be cautious in their recruiting efforts to ensure that these efforts do not subject them to tort liability.

 

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