Gruntled Employees

Noncompete cases not slowed by economy, legislation

A recent study by Shepherd Law Group shows that noncompete litigation nationwide has continued to trend upward, despite a slowing economy and legislative attempts to curb noncompetes. The latest study shows that noncompete litigation has more than doubled since 1995, and has increased by 61 percent from 2004 to 2009.

Tracking noncompete litigation across the United States is difficult. Unlike in discrimination cases, there are no government agencies to track noncompete litigation. What is more, the various state and federal courts have no mechanism for keeping track of noncompete cases. To get around these problems, the Shepherd Law Group study analyzes judicial opinions published by state and federal courts around the country. This data gives some indication of trends in noncompete litigation over time.

To be sure, the data has limitations. First, since it's based solely on published court opinions, it substantially underreports the number of noncompete lawsuits filed. Many if not most noncompete cases never result in a judge's written decision, and trial-court decisions in many states don't always get picked up by LexisNexis, where this data was collected. Moreover, the number of cases for a given year changes over time, for reasons known only to Lexis. (Compare the data in this post with 2009's "Eight ways to lose a noncompete case" and 2007's "Are noncompetes the new Sarbanes-Oxley?.") The likely explanation is that there is a lag between the filing and the publishing of court decisions.

So while the actual number of published decisions in a given year may not be that useful, the trends are. And if you're wondering about this year, the data suggests that the trend continues. If you prorate the first eleven months of 2010 over the course of a full year (that is, multiply by twelve elevenths), you get an estimate of 965 cases, which is a five percent drop from 2009. But that number will certainly go up over time. I expect that when the dust settles on 2010, we'll see a slight increase over last year's numbers.

Bottom line: noncompete cases have surged over the past decade and a half, and are showing no signs of slowing down. If you're a company looking to guard against unfair competition, a company looking to hire employees who have noncompetes, or one of those employees with a noncompete, make sure you have a noncompete specialist available to help you.

What do you think? Are you seeing an increase in noncompete activity in your industry or practice? Sound off in the comments below.

Eight ways to guarantee yourself a noncompete lawsuit

A year ago, I wrote a post for employers looking to protect themselves (and their secrets and customer relationships) with noncompetes. (See "Eight ways to lose a noncompete case.") It only seems fair that I should offer something for the departing employees to consider before they leave. (Wait a minute .... Is this helping the other side? No: it's not about sides. See "Rethinking noncompetes.")

If you want to make sure to find yourself on the business end of a noncompete lawsuit, do the following:

1. Take documents. When you take documents with you from your old employer, you cede the moral high ground. Oftentimes, your lawyer needs to argue how unfair it is for the big bad company to prevent poor little you from making an honest living. When you take documents, that whole "honest living" bit starts to sound off-key. To be sure, there's a big difference between taking the secret formula of Coca-Cola (or the secrets to the nooks and crannies in English muffins) and taking a generic business template. Your lawyer might be able to argue that the documents you took weren't really secret, and thus not worthy of as much protection. By why even go there? Don't take any documents, secret or not.
2. Email stuff to yourself. It always amazes me how often seemingly smart people appear to lose the use of their brains when it comes to email. A typical routine for a departing employee is to send email to a personal account from his or her corporate email account. Why on earth do you people think no one's going to catch you doing this? Because no one was next to you when you hit "Send"? Email uses computer networks, monkey boy. Computer networks keep track of stuff — we call it data. When this data shows you sending emails to yourself, people assume the worst — that you're stealing stuff. Don't do it. You will always get caught. And then you will get sued.
3. Use thumbdrives. This is a newer technique for taking documents. Instead of creating an email trail, departing workers use a tiny thumbdrive to make copies of documents and walk out the door with them. Over the years, thumbdrives — which can be as small as a stick of gum folded in half, with a USB plug sticking out of one end — have gotten cheaper, faster, and (in terms of amount of storage) bigger. But what these geniuses fail to realize is that these miniature hard drives have serial numbers, and the computer it gets plugged into often logs that serial number. With some system setups, the employer can see exactly what files were moved between the computer and the thumbdrive. Don't take the chance. Assume that the other side will find out whatever you don't want them to know. Leave your thumbdrive at home.
4. Divert business. Most courts around the country have ruled that it's OK for an employee to prepare to compete before leaving. They have recognized the reality that people don't leave their old jobs until they have something definite lined up for afterwards. Generally, preparing to compete is not itself a violation of a noncompete agreement. But actually competing before you leave is. And it's also a breach of the duty of loyalty that every employee owes to an employer. Diverting business to your new company while still collecting a paycheck from your old one is wrong and unlawful. Even if you know that you're going to miss a golden opportunity, too bad. Don't divert business.
5. Solicit customers before you leave. Related to the last point, it's also a bad idea to talk to clients before you leave. Yes, it would be nice to know that they're prepared to follow you to your new endeavor, but life is about taking risks. If the customer really likes you, they will follow you no matter what. So have faith in them, and in yourself. Don't talk to clients about your leaving before you actually go.
6. Talk coworkers into leaving with you. This also makes employers very angry. They start to worry about a mass exodus, and they start using loaded words like raiding and poaching and piracy. Plus the courts tend to be less sympathetic about Pied Piper departing employees. A court may invalidate a noncompete because the employee's right to ply their trade outweighs the employer's right to have its noncompete enforced. But an employee has no particular right to poach other employees. Leave your friends behind. They can always join you later down the road.
7. Leave disrespectfully. I know, I know. This sounds a little touchy-feely. It's not. This is the product of litigating noncompete and other employment cases for the past 16 years. It's cosmic law: people sue people they don't like. People don't sue people they do like. Burning your bridges on the way out directly increases the chances that you'll get sued. Sure, you might leave in a respectful and grown-up manner, and still get sued; you can't control other people's decisions. But you can reduce the risk of a lawsuit by leaving the right way. Saying things like "I've enjoyed my time here," "I have an opportunity and I owe it to myself and my family to try to pursue it," and "I have no intention of harming you" are all things you can do to lower the chances of a lawsuit. Slamming the door on the way out after cussing out your old boss is a good way to increase the chances of being sued.
8. Act "cute." I see this all the time. People like to play lawyer and come up with "clever" (I'm making finger quotes here), technical ways of getting around their noncompetes. Like having a coworker quit or a customer fire the old employer, waiting a week or two, and then having them join your new company. ("What? They're no longer a customer/employee." I call this acting cute. All it does is make you look guilty. Your former employer will see right through it. The judge will see right through it. I've seen many cases that were lost because the employees acted cute. Don't.

Avoiding these eight mistakes will not guarantee your freedom from a noncompete lawsuit. But it will decrease your chances of getting one, and it will increase your chances of winning it.

Discussion question: What are some other things you've seen people do to buy themselves noncompete litigation? Leave your answers in the comments below.

Rethinking noncompetes

I have to admit it: For the past 16 years, I've been a bit of an "employer snob." Professionally, I've described myself with the cumbersome and inelegant mouthful "management-side employment lawyer." (Seriously: you want to see someone fall asleep standing up at a cocktail party? Tell them you're a management-side employment lawyer. Don't get me wrong: the job's not boring. Just the label.) Labels aside, I've seen my role as someone who helps employers.

But over the years, as my practice has grown, I have developed a specialty in noncompete litigation. (Unintended consequence: some clients have asked me if I knew a good employment lawyer. D'oh.)

Noncompete practice is a little different from the rest of employment litigation because you tend to have management-side employment lawyers (snooze) on both sides of the cases. Which makes sense because you have employers on both sides: the old (enforcing) employer and the new (defending) employer. We do both sides at Shepherd, although if pushed, I'd probably say that I enjoyed defending more.

And here's where my problem comes from. I like to say that I don't represent employees, and that's generally true. If you want to sue your employer for wrongful termination or some sort of USERRA violation, I ain't your guy. But truth be told, when I'm defending a noncompete lawsuit, I am in fact representing (former) employees. To be sure, it is commonly the new employer who's paying my freight. But most of the time, the new employer is not named as a defendant. So, yes, I represent employees in noncompete cases. And quite honestly, we've had some very good success in doing so, against some of the largest law firms and employers in the world.

But I've only just come to realize that I've been looking at this the wrong way. It's not about choosing a "side" — employers on one side and employees on the other side. It's about following a principle.

Most noncompete lawsuits are brought for the wrong reasons: to punish former employees. To thwart competition. To send a message to competitors to stay away from our people. To send a message to our employees that you're not free to leave.

I have a problem with that.

As I've said many times over the past three and a half years on this blog, talent is the most important asset any company has. And it's up to the employers to find, train, manage, and keep this talent. Noncompete agreements, which are almost always forced down a new employee's throat without the possibility of negotiation, are a poor way to retain employees. Fear never inspires loyalty. And disloyal employees will find a way to leave eventually.

No, the better method is to give employees reasons to want to stay. But if they decide eventually that it's time to leave the nest, then they should be free to do so. Even if it means that they're going to compete.

With one exception. They can't take our stuff. And by stuff I mean two things: our secrets and our client relationships. If their old jobs required them to work with our secrets — our legitimate, protectable secrets, not stupid things like prospect lists — then they should not be allowed to take them to their new jobs. And if in their old jobs we paid them to develop and maintain customer relationships to the extent that they became the face of our company, then they should have to stay away from those relationships for a reasonable period of time. A year, say. Enough time to make the customers understand that the company was what made the relationship special, not the departed employee.

And that's it. If a company hires me to enforce a noncompete against an employee who has taken secrets or hijacked our customer relationships, then I'll go after that employee with every club in my bag. But if an employer wants me to help punish or screw over employees who simply wants to do their own thing, that employer's going to have to find a different firm.

The principle I'm interested in is fair competition, because that's what our system's all about.

So from this day forward, when it comes to noncompetes, I'm not about being on the employer's side versus the employee's side. I'm about promoting fair competition. The law is designed to protect against unfair competition, not ordinary competition.

Employees: If you are stuck with a noncompete and you want to go to another company or maybe start your own, we can help you — as long as you're not stealing secrets or unfairly commandeering customer relationships.

New employers: if you're looking to hire new talent but not looking to score your competitor's secrets, we can help you.

And old employers: if someone's looking to unfairly compete, we can help you.

It's not about employers and employees. It's about competition. That's the side we're on.

Why FOX can hire Conan as soon as he leaves NBC

People are still talking about the late-night wars at NBC. One interesting thing I keep hearing is that Conan O'Brien is ... well ... kinda screwed. His statement yesterday rejecting NBC's plan to move him and "The Tonight Show" was brilliant and worthy of respect. (See "How Conan O'Brien powned NBC.") But even if he makes good on his promise to leave NBC rather than move, many have speculated that he will not be able to head on over to FOX (or ABC or cable) because of his noncompete agreement.

As far as I know, no copy of Conan's employment agreement has found its way online. Presumably, when he packed up and moved to California to take over the show, he signed an agreement that spelled out his and NBC's mutual obligations. For example, some have reported that NBC promised that it wouldn't run "The Tonight Show" any later than 12:05 a.m. Eastern. (For those of you who've forgotten, "a.m." is Latin for "no longer tonight.") If this report is true, then presumably NBC is not in breach with its plan to run "The Not-Really-Tonight Show" after the reworked 11:35 version of the Leno debacle. (I don't think that's what they're calling it, but it would be refreshing.)

But commentators have suggested that Conan would be bound by a noncompete that would prevent him from competing with NBC for a year or two. See reports here (ironically from CBS, who must be LTAO) and here. The blog "Concurring Opinions" also has a nice write-up of possible contractual issues in the Conan matter here.

But Conan isn't bound by a noncompete.

Let me point out for a moment that I write this without having seen his NBC agreement, and without any actual knowledge of his negotiations. So how do I know that he's not bound? Well, noncompetes are a specialty of Shepherd, our employment-law firm.

I put a hint in the second paragraph above. Go back and reread it. I'll wait. [... tick ... tick ...] Got it? That's right: "moved to California." Conan shoots "The Tonight Show" in Universal City, California. (I need to get a city named after my company.) And California, as many of you know, prohibits noncompetes. Section 16600 of the California Business and Professions Code makes employment-related noncompetes — like the one Conan reportedly has — void.

Now if NBC was smart — and given how they've handled all of this, there's not much chance of that being the case — they may have tried to do an end run around 16600 by placing a choice-of-law provision in the contract. NBC is headquartered at 30 Rock in Manhattan, so they could have insisted in the agreement that New York law govern it. And if NBC got him to sign it back in 2004 when they promised the show to him, that might have made some sense. But not now.

Because in August 2008, New York decided to protect oppressed millionaire TV broadcasters by enacting the Broadcast Employees Freedom To Work Act, which banned postemployment noncompetes for broadcast-industry employees. Oh ... so sad.

Actually, don't feel bad, NBC. Even if New York hadn't gone and done that, there was no way that a California court was going to honor a choice-of-law clause to enforce a noncompete that restricts a California worker (Conan) from plying his lawful trade. Either way, no noncompete is going to stop Conan from broadcasting on FOX or ABC or Telemundo or YouTube.

To be sure, Conan's agreement might have some penalty if he walks out on NBC (assuming NBC didn't breach the contract themselves by make "The Tonight Show" into "The Not-Really-Tonight Show"). At the very least, he could well be walking away from millions of dollars by not finishing out his term.

But NBC can't stop him from working. And how sure am I about this, especially since I haven't read the contract? This is how sure: If NBC sues Conan for violating a postemployment noncompete agreement, my firm will offer to defend him. For nothing. (Not soliciting work here, of course. But if he calls, we'll do it.)

See you after "24," Conan.

Debating noncompetes

Whether a noncompete is enforceable depends on what state you're in. In California, as most of you know, employment noncompetes are completely illegal. At the other end of the spectrum is Florida, where noncompetes are presumptively enforceable — the employee has to prove that the restriction is unreasonable, instead of the usual requirement that the employer prove its reasonableness. The other 48 states fall in between to different degrees. My state, the Commonwealth of Massachusetts (we call our state a "commonwealth" because we're, you know, special; can you name the other three?) will enforce noncompetes, but only when they're necessary to protect a company's secrets or customer relationships.

But now some people want to change that.

The Massachusetts House of Representatives (you know, the august body whose previous three speakers were indicted) is currently entertaining two bills to radically cut back the power of employers to use noncompetes. One bill, House No. 1799, places huge restrictions on noncompetes: they can only be enforced on employees earning $100,000 a year, they can only last two years, and the employer has to pay a ransom of half the employee's salary (up to $100,000) during the enforcement period. The other, House No. 1794, stands Massachusetts with California in completely banning noncompetes.

It's as yet unclear how much support these bills have or will get. In a recent column in The Boston Globe ("Start-ups stifled by noncompetes"), Scott Kirsner suggests that startups and their backers (unsurprisingly) are against noncompetes, while established companies (unsurprisingly) favor them. (Full disclosure: Scott's piece mentions two of my noncompete clients, although I didn't hear from him.) In the same piece, Governor Deval Patrick gives his principled take on noncompetes. Scott writes:

Governor Deval Patrick hasn’t taken a position on noncompetes. When I spoke with him earlier this month, he said, “I don’t have a stake in the status quo’’ but added that he hadn’t heard a consensus view from people in the innovation economy as to whether they’re a positive or a negative for businesses: “If there’s consensus in the industry, I’m happy to support that.’’

But the governor could end up with his finger in the wind for a while looking for that consensus. You see, in every noncompete lawsuit, there are two companies: the old, or enforcing, company; and the new, or hiring, company. (Usually, the new company is an interested third party rather than an actual defendant in the lawsuit.) And over time, companies may find themselves on both sides of the issue. Lawyers, too. Most noncompete cases are litigated by management-side lawyers (like me) rather than employee-side lawyers.

The Globe ran a nice editorial framing the issue in yesterday's paper: "Clause for concern." When I spoke with deputy editorial-page editor Dante Ramos last week, I was a bit apprehensive about criticizing these legislative bids to gut or kill noncompetes. I didn't want to be seen as self-interested; companies around the country pay us a lot of money to litigate noncompete cases. To be sure, the death of noncompetes in Massachusetts will mean a long-term loss of that type of business. (It will also mean a short-term jump.)

But the bills are bad policy. Massachusetts has a 300-year-old tradition of protecting the freedom to contract; California doesn't have a 300-year-old tradition of anything. While many companies try to enforce noncompetes for the wrong reasons (spite, vindictiveness, anger, desire to stifle competition), Massachusetts judges usually see through this and deny enforcement. And in some circumstances, enforcing a noncompete is the only way to prevent unfair competition. Throwing noncompetes out like H. 1794 would do is the whole baby-and-bathwater thing. And H. 1799's mishmash of arbitrary restrictions on noncompetes lacks principle — it's neither for noncompetes nor against them. (That said, the drafter is a fine lawyer and experienced noncompete litgator.) At least the outright ban of 1794 stands for something, which I can respect if not agree with.

Companies shouldn't use noncompetes to try to make employees stay. That's what management is for. But used sparingly and wisely, noncompetes can be an important tool for protecting companies' secrets and customer relationships.

• • •

The other three "commonwealths" are Pennsylvania, Virginia, and Kentucky. Puerto Rico is a commonwealth, too, but not in the same way. Go figure.

Eight ways to lose a noncompete case

You might think that with the economy in the tank, employers would be less worried about enforcing noncompete agreements and more worried about merely staying afloat. Not so. In fact, as the active workforce shrinks — unemployment jumped up to 7.6% today, and 600,000 jobs vaporized since New Year's Day (Reuters story here) — the battle for talent has actually become fiercer. To be sure, the number of reported decisions dropped off a bit in the latter half of 2008 (see chart). But anecdotal evidence suggests that employers' appetites for protecting their stuff and their peeps are still strong.

Over the past 11 years at Shepherd Law Group, we've worked on hundreds of these matters for employers on both sides — the former (enforcing) employers and the new (hiring) employers. We've seen a lot of different ways to lose noncompete cases, if you're the former (enforcing) employer. Here are eight:

1. Put your faith in the language of the noncompete agreement. I can't tell you how many times I've had lawyers for former employers tell me that they were going to win "because he signed the agreement." The court doesn't care what the agreement says if it's not absolutely necessary to protect the company's interests.
2. Try to enforce against any old employee. If the employee is not in a position to give the new employer an unfair advantage by taking confidential information or customer relationships, you can forget about enforcing it.
3. Make sure the noncompete is broadly drafted. Too many lawyers think that drafting an agreement is about trying to think up every metaphysical possibility and then drafting around it. They also think that it's OK to draft broadly if you include a provision that "allows" the court to scale back the scope of the agreement. That's mighty kind of you, but the court doesn't care about those provisions (often mistakenly called "blue pencil" clauses). More often than not, a court will toss the whole agreement if it decides it's too broad. And in some states, the court will automatically 86 the noncompete if it's even a little too broad.
4. Focus on geography, duration, and scope. Most lawyers remember from law school that you need this particular trifecta to enforce a noncompete, and they think the analysis ends there. While it is true that noncompetes that are overbroad in these categories will fail, that's only a table stake. What's more important is the necessity of enforcing the agreement to protect secrets or relationships.
5. Wait a while to file. The key to winning a preliminary injunction (which is the usual goal in a noncompete lawsuit) is to convince the judge that without it, your company will suffer immediate, irreparable harm. Waiting around to file makes that argument less persuasive. On the other hand ...
6. Ask for the injunction before you've developed enough evidence. Sometimes you can win based solely on the affidavits you supply, which you got from your internal investigation. But if your evidence isn't strong enough, it's better to take some expedited discovery (depositions, documents, computer and email records) before you ask for the injunction. You usually only get one shot at the prize.
7. Don't worry about which state to file in. I don't mean state of mind; I mean jurisdiction. Sometimes which state you file in can make a crucial difference in whether the agreement will be enforced. In California, as most lawyers know, you haven't got a prayer, while in Florida, noncompetes are presumptively enforceable.
8. Focus on the law instead of on the story. This is the most important lesson. Lawyers often fall in love with their legal arguments. But noncompete cases are equity cases, not law cases. To be sure, that distinction means less than it did a hundred years ago. But if you have a brilliant, clever, technical legal argument and an unsympathetic story, you are way more likely to lose.

Bottom line: If your client's wearing the white hat, and your agreement is narrowly drafted, and your secrets or customer relationships are in imminent peril, then you've got a fighting chance of winning. Otherwise, wave goodbye to the former employee and get back to work.

Are noncompetes the new Sarbanes-Oxley?

We talked last week about the increase in noncompete cases over the last decade (see "The rising noncompete tide"). Over that period, the number of published noncompete decisions in state and federal courts nationwide has doubled. And over the past two years (2004 to 2006), the number of decisions has surged 37%.

Several people have asked for more information on how I got these numbers. My firm did a series of LexisNexis searches designed to find reported noncompete decisions for each year. The complete results are shown in the chart above.

What this doesn't tell you is the number of noncompete cases filed each year. Those numbers are much larger because most noncompete cases are decided at the trial-court level instead of at the appellate-court level. Most trial-court decisions go unpublished, particularly when the decision is just a ruling on a motion for preliminary injunction, which is how most noncompete cases end. (The old employer asks the court to stop — or "enjoin" — the new employer from hiring the employee who signed the noncompete.) The increase in the number of cases filed would be even more dramatic.

Why the growth in noncompetes? One reason for this surge is the increase in employees signing noncompetes, especially outside the IT industry. Another reason is the fiercer competition for top-level talent. It's hard to get good people, and companies don't want their rivals to take theirs.

Many in-house counsel will tell you that one of their biggest employment-law concerns is the rise in Sarbanes-Oxley whistleblower lawsuits. But compare the number of cases filed under SOX's Section 806 (the only part of the Act that allows an individual to sue) with the noncompete statistics above. According to the U.S. Department of Labor, only 130 SOX whistleblower cases were decided in 2006. (You can get more data on SOX cases at the DOL's website.) And while that number has risen over the four years since the Act was introduced, the number of those cases pales when compared to noncompetes.

Maybe noncompetes are the new Sarbanes-Oxley whistleblower bogeyman.

*    *    *

Several talented writers have picked up on the story of noncompete mania. Evil HR Lady weighed in with this comment, and Charles Green at Trusted Advisor Associates had this to say. Over at OregonLive: At Work, Brent Hunsberger contributed "Noncompete clauses on the rise?" And Professor Paul Secunda over at Workplace Prof Blog adds "Non-Compete Legislation To Combat Increasing Number of Cases." The latter two posts discuss legislation pending in Oregon designed to stem the noncompete tide.

The rising noncompete tide

FinancialWeek's Frank Byrt has a great piece on the rise of noncompete litigation directed at top executives: "No place like home: Companies blocking more execs from jumping to competitors" (registration required, maybe). Frank's jumping-off point is the recent high-profile litigation between TJX and Pier 1. In that dispute, Alexander Smith left his job as a group president at TJX to become Pier 1's CEO. TJX fired off a lawyer-letter warning Smith that he was violating his noncompete agreement. Pier 1 then made a preemptive strike by seeking a temporary restraining order to prevent TJX from interfering with Smith's new employment.

As that battle rages, Frank notes the growth in noncompete litigation and the fact that top executives are increasingly becoming targets. Frank and I had a lengthy discussion about this, and some of that discussion made it into his article:

More and more employers — witness clothing retailer TJX Cos. — are threatening to sue to enforce non-compete clauses of executives’ employment agreements when they jump ship, and it’s no longer just to protect company secrets or customer lists.

Rather, companies are more frequently using non-compete litigation to try to block top employees from working for a competitor, said Boston attorney Jay Shepherd. “I think part of it is that it’s harder to get good top executives, so there’s a competition for that talent.

“Our non-compete litigation is growing like crazy,” he said of his employment law firm. The portion of non-compete cases it handles has grown to 65% of the practice, about double that of 2002.

Some of the new cases stem from the recent flurry of mergers and acquisitions. In these situations, typically the merged company doesn’t want departing executives, who have left of their own volition, trying to duplicate their success there with the competitor down the road, Mr. Shepherd explained.

“We’re definitely seeing more of this,” he added. “And people forget that companies can get emotional, too,” and will file lawsuits based on a sense of betrayal or disloyalty and, occasionally, out of spite.

And it's not just noncompete lawsuits against executives that are rising. Our own research tells us that noncompete cases have surged over the last decade. The number of published decisions in state and federal courts nationwide nearly doubled from 1996 to 2006. Over the past three years, the number of reported cases rose 32%. One reason is the increase in employees signing noncompetes, especially outside the IT industry. Another reason is the fiercer competition for top-level talent.

Bottom line: If you're thinking of hiring your competitor's top performer, be prepared to battle it out in court.

Issues raised by "lift outs"

Robert Weisman of The Boston Globe had a nice piece called "The business of lift outs," describing some of the problems companies face when they "lift out" a team of workers intact from another company. Rob describes lift outs thus:

The practice of scooping up talented groups of workers, once relatively rare and frowned upon as poaching, has become far more common and respectable. Headhunters have given it a more upscale name — "lift outs" — and companies in a range of sectors, from finance and technology, to healthcare and professional services, have embraced it as the quickest way to gain a foothold in a new market or region.

Although the term hasn't really gone mainstream yet, the phenomenon is quite common. At our firm, we deal with lift outs (or, if we're representing the former employer, "employee raiding") all the time. Rob called me to talk about some of the problems the company doing the lifting might face, and we chatted about litigation and corporate-culture problems:

But lift outs don't always go smoothly. Litigation is a popular option for jilted employers, especially at technology and life sciences companies where noncompete and nonsolicitation contracts are commonplace. Whether such contracts can be enforced hinges on many factors, including the type of new jobs the team is assuming, how employees were approached by the team leader, whether they seek to capitalize on customer relationships developed on the payroll of their former companies, and the judge or jurisdiction handling a lawsuit.

Even in the absence of legal challenges, lift outs can backfire. "People at a law firm can resent it if they're getting ready to become partner and new people are brought in above them," said Jay Shepherd, a Boston employment lawyer. "And while the team might work well together, they may not fit in well with the culture of the new firm."

The noncompete lawsuits that often result from lift outs are the more obvious and overtly expensive side effect. But the lifting company should not underestimate the integration problems that often arise when a clique of people — often receiving some special treatment — are suddenly thrust together with employees who've been around a lot longer. It might seem junior high schoolish, but the costs of the new kids not getting along with the old ones could end up being more severe than the expense of noncompete litigation.

Think hard before you lift out.

Ten mistakes employers make when using noncompetes

1. Making every employee — from the CEO to the mailroom guy — sign a noncompete.
2. Giving an existing employee a new noncompete without giving him or her something else in exchange for it.
3. Using a noncompete to protect anything other than trade secrets, confidential business information, and customer goodwill.
4. Misunderstanding what the heck "goodwill" is. (Hint: it's not your brand image; it's the customer relationships your employee is paid to maintain.)
5. Trying to use a noncompete in California.
6. Using noncompete enforcement as a strategy to scare employees out of leaving your company.
7. Failing to update a noncompete when the employee's job substantially changes.
8. Hoping that a court will scale back (but otherwise enforce) your overbroad noncompete.
9. Waiting too long to go to court to enforce a breached noncompete.
10. Trying to use a noncompete to protect against ordinary competition (as opposed to unfair competition).