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Jul 2015
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July 21, 2015

Watch Your Flank: In the Race to Find New Talent, Make Sure You Protect Your Existing Key Employees


Talent acquisition has been a continuing hot topic in the automotive industry for the past few years. Many auto supply companies survived the “great recession” in part by cutting employee staff and making do with fewer people. Now, production requirements are up and the OEMs are demanding suppliers increase capacity and work around the clock. Suppliers, in turn, are trying to recruit for key positions such as qualified engineers, software programmers and skilled trades people. Add to that, a wave of non-traditional auto suppliers that are coming to market and looking for seasoned employees, and you start to understand the concern surrounding talent.

But, as my colleague, Steve Palazzolo, wrote in a recent blog post, as you look for new talent, make sure to keep an eye on your existing workforce. (http://www.wnj.com/blog/palazzolo) Steve advises suppliers on how to retain employees through a series of initiatives designed to make them feel motivated and valued. This is excellent advice that companies would be wise to follow.  For this article, I’d like to suggest suppliers go one step further. In order to make sure that your key employees cannot just leave and go directly to a competitor, you need to have the appropriate restrictive agreements in place.

Given the current shortage of talent, there is no doubt that your key employees are at risk of being poached by a competitor. Or, as stated differently, YOU are at risk of losing key employees to the competition. And, sometimes it’s not just one valued employee who may be poached, but an entire group who decide to leave “en masse.”

Earlier this year, A123 Systems LLC sued Apple Inc. for allegedly poaching five employees from the lithium-ion battery maker. A123 claimed that Apple hired its top scientists and engineers to accelerate the production of batteries Apple would use in its developmental electric vehicle. Once these employees left to join Apple, A123 was forced to stop work on its new battery technology that had been underway.  A123 also claimed that its former employees violated non-compete and confidentiality agreements by going to work for Apple or even by making plans to do so. After some initial legal skirmishes in court, the parties entered into a confidential settlement and the case was dismissed.

Even more troubling than A123 v. Apple, it was reported this past May that Uber Technologies Inc. poached 40 researchers and scientists from Carnegie Mellon University. It was only in February that Uber and Carnegie Mellon had declared a strategic partnership where the ride-hailing service would team with Carnegie Mellon to jointly develop autonomous vehicle technology. However, apparently before the partnership even got underway, Uber changed course and decided to offer significant contracts to directly hire key members of the University’s research team, which included the director of the robotics engineering center and many other key program directors. This mass exodus has obviously left the University reeling.

A recent review of public databases did not show any pending lawsuit filed by the University against either Uber or the former employees. A lawsuit may be in the offing, but that remains to be seen. It is also unclear whether the University employees had enforceable non-compete and confidentiality agreements with their employer. 

These cases highlight the importance of having the proper employment restrictions in place. Indeed, another dynamic that makes poaching more likely is that employees these days simply don’t have the loyalty to their employers as in prior generations. Employees now stay at one job an average of only 4.4 years; the millennials (born between 1997 and 2007) expect to stay in jobs less than three years. The stigma of being a “job hopper” is essentially a relic of the past. So when your competitor reaches out to your key engineer, he is much more likely to listen than he would have been even just ten years ago.  

All of these factors increase the likelihood of employers losing key employees who have extensive knowledge of unique manufacturing processes and competitive advantages – employees who have had close contact with key customers and know their needs, requirements and production plans.

How can you protect your business?

For starters, prepare now for the worst case scenario. Imagine that you receive an e-mail late at night from a key program director, saying that she is resigning effective immediately to go to a competitor. What can you do?

Fortunately, there are a number of immediate steps automotive suppliers can and should take:
  • Identify your key employees – those you just couldn’t bear to see go to a competitor – and sign them to reasonable non-compete and non-solicitation agreements. Non-compete agreements are enforceable in all but four states in the U.S., provided that they serve a legitimate competitive business interest and are reasonable in scope and duration.
  • Identify your “trade secrets” and confidential information, and ensure they are actually treated as such. Limit disclosure to only those within the company who need to know them, keep them under the proverbial (or actual) lock-and-key and never disclose them to outsiders without a proper non-disclosure agreement.
  • Make sure that every employee who may have access to your trade secrets or other confidential information signs a broad confidentiality agreement prohibiting, among other things, the employee from taking or using any of your information with another employer.
  • Then, when and if a key employee departs, conduct a thorough exit interview and remind that person of their contractual obligations, emphasize the types of trade secrets that must not be disclosed, gather all corporate assets/devices and obtain a signed acknowledgment. Exit interviews can be an excellent opportunity to convey and obtain critical information and create a “record” that can be used in court, if necessary.
These protections will put you in a much stronger position to enforce your rights if an intrepid competitor tries to hire away one or more of your key employees.

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