The pros and cons of poaching employees from competitors

The pros and cons of poaching employees from competitors

Poaching employees from a competitor can strike a killer blow, simultaneously boosting your prospects while crippling the other business. It might be good for the bottom line today, but is it a sustainable strategy?

On the plus side, there’s potentially a boost to revenue, sales, customers and leads when one of your competitor’s employees joins your team bringing their experience, client list and reputation. At least that’s what you’re thinking when you make the bold move to buy your opposition’s trade secrets and expertise.

But have you considered what are the inherent risks of poaching employees, particularly from competitors?

Is poaching staff ethical? Is it legal?

Many believe that, at best, the practice is unethical. At worst, you’ll find yourself entangled in restraint of trade clauses that restrict who the employee can work for and how much of their knowledge they can share.

The good news for those determined to poach is if you’re prepared to go to court, restraint of trade clauses are not always binding. In some cases, the courts have found them overly restrictive of an employee’s work opportunities and struck them out. The bad news is that it doesn’t happen often. It’s more likely that your new employee will find themselves in court, and if you help fund the case, you might come in for judicial attention as well.

Think twice before knowingly employing someone who may be in breach of their post-employment obligations with their former employer, suggests research from Corrs Chambers Westgarth. It cites a case this year in which a senior employee of a multinational subsidiary was recruited by a company looking to establish operations in Australia. The man’s previous employer successfully took legal action to stop him working for the new firm (until the end of his restraint period of six months) and to return confidential files it alleged had been taken.

Damages awarded to former employer

In another case, a man who allegedly took his clients when he left an accounting firm was required to pay damages to his former employer.

And there’s more bad news waiting for the firm that poaches. A new employee parachuted into a position doesn’t perform as well as someone promoted from within. Management professor Matthew Bidwell also found that ‘external hires’ are paid up to 20 per cent more than internal candidates, and they’re more likely to resign.

Avoiding the pitfalls of poaching employees

Despite the many negatives associated with poaching employees your competitors, you may be faced with no alternative – perhaps a key employee has left or there’s been a boom in sales.

You can avoid some of the pitfalls by carefully checking the potential employee’s contract and obtaining legal advice. It may also be a good idea to prepare your existing staff by explaining your decision and being sensitive to any concerns they may have.

But for the future, a useful exercise could be to identify roles and skill sets within the organisation that are vulnerable if you lose key staff. Based on that information, a succession plan that includes staff training and planning other risk-management activities may help to keep you prepared.

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