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How to stop rivals from raiding your talent (using fair means or foul)

June 2, 2015, 3:24 PM UTC
Vikings or Normanns landing at a beach before a raid Digitally colorized. Original: image no 00017140 - no date (cir. 800)
(GERMANY OUT) Vikings or Normanns landing at a beach before a raid Digitally colorized. Original: image no 00017140 - no date (cir. 800) (Photo by ullstein bild/ullstein bild via Getty Images)
Photograph by Getty Images

Uber recently pulled a nasty hit-and-run on partner Carnegie Mellon University, poaching 40 researchers in a raid aimed at bolstering the car service’s self-driving vehicle ambitions. Meanwhile, fading wearables maker Jawbone filed a lawsuit last week against Fitbit, accusing its rival of hiring its employees in a plot to plunder company secrets.

Raiding talent is hardly a new business strategy, of course. It’s been going on since the Middle Ages, when monarchs would literally steal chefs, artisans, and others from rival kingdoms. But there’s been an uptick in recent years, as more companies in the technology industry and elsewhere strip-mine each other’s human capital.

Can companies put a stop to it? Sure, and they do so all the time by using tactics that range from hardball contracts to calling in the FBI. Such restrictions, however, not only raise legal questions but affect innovation for everyone.

Silicon Valley as role model, hypocrite

“Companies here go after competitors’ talent, and I’ve been arguing that’s a good thing since it allows knowledge to flow,” says Orly Lobel, a University of San Diego law professor.

She praises California’s ban on non-compete clauses, saying her research shows how states that limit or forbid such clauses are more innovative than those that enforce them.

In Silicon Valley, the most innovative place of all, the rule against non-competes helps create a culture of talented people constantly moving from job to job. To keep up, cities like Boston want a similar rule, while Oregon and Colorado have already started to follow California’s lead.

But look closer and you’ll see that the big companies of Silicon Valley are not as fond of worker mobility as they might claim. In one of the most egregious examples, a cabal of tech giants—including Google(GOOG), Adobe(ADBE), and Intel(INTC)—signed on to a Steve Jobs-led conspiracy not to hire each other’s employees.

And that’s just one example of the drastic measures that companies, even in the Valley, take to prevent their workers from going to a competitor.

Trade Secrets, NDAs, the FBI, oh my

While non-compete clauses are illegal in California, they remain popular elsewhere, and have even made their way into the contracts of fast-food workers. And they’re just part of a larger legal toolbox.

In the case of Jawbone, the company sued Fitbit and its former staffers over theft of trade secrets, claiming the departing employees downloaded a raft of confidential material while heading out the door. If the allegations are true, Jawbone may well have a case.

Typically, though, companies’ threats over trade secrets are just bluster. While certain types of information, such as the formula for Coke(KO), are a bona fide secret, most other pieces of supposedly sensitive corporate information—marketing material, emails, and the like—are not. But for some companies, this distinction doesn’t really matter.

As an April episode of HBO’s satire Silicon Valley suggested, the real goal of trade secret lawsuits can be to pummel a competitor with legal costs, and slow them down with court capers.

It’s a similar situation with other intellectual property claims and with Non-Disclosure Agreements, which are ubiquitous in the tech industry. The NDAs may be unlikely to hold up in court, but does the average worker really want to tangle with $1,000-per-hour lawyers to find out?

For companies, just invoking the possibility of legal action (no matter how baseless) can help dissuade an employee from jumping ship, or send a signal to a competitor to stay away from key staff.

And if a company wants to get really nasty, they can always call in the G-Men. According to Lobel, the law professor, big firms are increasingly egging on the FBI to start investigations against competitors and former employees under the Economic Espionage Act. That law is nominally about protecting U.S. companies from foreign governments, but President Obama expanded it in late 2012 to encompass domestic theft of trade secrets.

Common sense approaches to saving secrets, keeping staff

Fortunately for bosses who don’t want to use legal brass knuckles, there are other approaches to stave off raids and keep critical knowledge in-house.

David Levine, a law professor at Elon University, suggests that company executives work with IT staff to spot irregular computer use, which can flag things like flash drives going out the door. He also recommends other internal controls like limiting the distribution of sensitive documents to ensure information doesn’t lose its legal status as a trade secret. Finally, Levine says exit interviews can be an important tool to detect whether an employee’s departure may be part of an early exodus to a competitor.

Both law professors, however, are critics of the more aggressive legal means, which companies have been using to keep employees in place. According to Lobel, it’s time that state courts and legislatures contemplate measures to deter firms stop trying to claim “fluff” as confidential property, and that it’s time for greater scrutiny of what she calls “human capital controls.”

Finally, she has a sure-fire piece of advice for firms that fret over departing staff.

“The other way to retain staff is just be a great company,” Lobel says, noting that an intangible cool factor meant Facebook(FB) felt it had no need to join the anti-poaching conspiracy organized by Google, Apple(AAPL), and other older companies.