Ontario’s non-compete ban doesn’t remove all risk when hiring rival talent, says employment lawyer
OpenAI recently filed a case against Apple after an employee from the chipmaker team allegedly presented 1,000 files of an unreleased product to senior Apple leadership.
The company says the presentation happened months before Apple started making its own AI products, including the recently released Apple Home View product, according to CTV.
Apple alleged there was no evidence to prove OpenAI’s claims, as policies and procedures are in place to ensure new employees don’t share previous information with employers. According to CTV, this filing has been part of an ongoing trade secret dispute happening between the two companies.
Earlier this year, Apple filed its own lawsuit after an employee allegedly from the iPhone maker’s team took confidential information to OpenAI.
The ongoing dispute between the two companies brings up an important question for employers: what should you watch out for when hiring candidates from a competitor?
Jasmine El Hamidi, associate lawyer at JPAK Law, Toronto, says that while it is rare for competing companies to go after each other directly, there is still some red tape employers need to keep in mind.
“While the simple act of hiring someone from a competitor is generally not an issue, there are other considerations,” she says.
The non-compete ban and its exceptions
Ontario banned non-compete clauses for most employees under the Employment Standards Act ( ESA) in 2021. However, El Hamidi says that for any employee who entered into a non-compete clause before the ban was enforced, that clause could potentially still be enforced.
“But, practically, it’s rare that would happen,” she says.
There are also two notable exceptions that employers need to be aware of.
“If you’re hiring an executive-level employee, a non-compete clause can still be enforced against them. Or if the employee had sold their business and then became employed by that same business, a non-compete can be enforced in that scenario as well. For everyone else, that clause is void,” says El Hamidi.
When hiring employer can be held liable
Even without a non-compete clause in play, there are circumstances where a former employer can come after both the candidate and the hiring company, El Hamidi says.
One example is a breach of a restrictive covenant in the employee’s contract with their former employer — that includes a non-solicitation clause or a confidentiality agreement.
“Even at a senior level, if you have that new hire actively encouraging customers or employees of their former employer to follow them, you as the hiring employer can carry some of that risk as well,” she says.
When it comes to hiring a senior leader from a competitor, there is also the question of fiduciary duty, El Hamidi says. According to the ESA, these duties legally require employees to avoid acts such as stealing opportunities, poaching, or using information to compete unfairly.
“There are especially larger risks when hiring someone more senior — a managerial employee, director, or officer — because they are generally exposed to much more confidential information throughout the course of their employment, and that carries with it greater duties,” she says.
Watch the notice period
One area that employers often overlook is the resignation notice period, El Hamidi says.
“You don’t want to actively encourage a candidate to sign an offer immediately if that would mean they’re breaching a notice-of-resignation clause in their current contract,” she says.
If a candidate’s current employment agreement requires one month’s notice and a hiring employer pushes them to start earlier, both the candidate and the hiring employer could be held liable, she says. This matters even more when the candidate holds a director, manager, or C-suite role.
What to ask — and what to avoid — in the interview
During the interview process, employers should never encourage candidates to share inside information about their former employer — even if the candidate is willing to do so, El Hamidi says.
“However tempting the competitive advantage may be, that can expose you to significant risk. That’s the major thing to avoid,” she says.
What employers should do instead is ask whether candidates are subject to any restrictive covenants that could affect their ability to perform in the new role, and request copies of those covenants upon hire, she says.
Consequences of not doing your due diligence
If a hiring employer was aware that a candidate brought over confidential information, trade secrets, or business plans and benefited from it, the former employer can seek an injunction to stop the use of that information, El Hamidi says.
“They could also pursue damages if the new employer has been unjustly enriched — meaning they’ve gained a financial benefit while the former employer has suffered measurable losses as a result of the loss of that information.”
If an employee was not upfront about their contractual obligations, shei says employers are allowed to terminate with cause if the conduct is serious enough.
“If it’s serious enough to constitute misconduct that leads to an irreparable loss of trust and fundamentally breaks down the employment relationship, that’s where you could potentially terminate the employee for cause,” she adds.
What to include in the employment contract
To avoid these situations altogether, a clause can be added to the employment contract to ensure confidentiality is respected, El Hamidi says.
“A clause should require the employee to confirm they have not taken and will not use any confidential information from their former employer, and that they will continue to abide by any obligations from their previous employment — including non-solicitation and confidentiality duties.”
While situations like this tend to be rare, El Hamidi notes the more common outcome is a former employer going after the departing employee directly — not the company that hired them.
“Generally, it doesn’t happen very often — one employer going after another employer. What we see more often is the former employer pursuing the departing employee directly, particularly if they find that employee has been taking confidential information or poaching their clients or staff,” she says.
