ASSET RAIDING The Latest Innovation in Corporate Shenanigans
by Charles D. “Chuck” Gabriel
Managing Member, Pierce Gabriel & Parker, LLC, a
civil litigation law firm
Businesses go to great lengths to protect and preserve their assets from thievery, misappropriations and fraud. After all, industrial espionage is as old as corporate competition. That is why commerce in America relies on long standing commercial laws and patent and copyright law protections, and why trade secrets laws have been enacted. But not all assets are protected by these commercial and intellectual property laws. To protect most intangible assets companies enter into non‐compete, non‐solicitation or other restrictive agreements including covenants for non‐disclosure. Unfortunately, these agreements are not secure protections, even for legitimate trade restraint goals.
There is an inherent and understandable bias against restraints of trade as they interfere with the free flow of commerce. Nonetheless, businesses have the legitimate need to protect their economic interests. Recognizing their validity, our laws have been designed to provide a level playing field in the market place. If nothing else, the law presumes that all parties to an agreement ought to be free from outside interference when it comes to parties complying with the terms of their contracts.
Asset Raiding … alludes to the most critical intangible assets businesses possess: their human resources.
“Asset Raiding” is a growing phenomenon in the market place. It alludes to the most critical intangible assets businesses possess: their human resources.
Employee retention is a challenge for all businesses. “Asset Raiding” can occur under many scenarios but it generally arises when a market place competitor systematically “raids” the competition’s sales force, cadre’ of manufacturer’s representatives, research and development teams or their strategic planning and marketing departments. It often happens after the raiding company hires a senior manager or staff member away from the soon‐to‐be raided business.
Whether or not there is a non‐compete, non‐solicitation, non‐disclosure, or other restrictive covenant in place, the “new hire” brings with him or her an intimate knowledge of the old company’s personnel, marketing, operations, and HR issues including pricing, compensation strategies, and more. Whether the former employee directly exploits this knowledge or tacitly allows the new employer to act, any concerted effort to “raid” the former employer is a calculated effort to interfere with the competitor’s business relationships and ability to do business, and it is wrong.
If the newly hired senior manager planned for such a raid on resources while still employed by the former company, these actions raise questions of his loyalty. Whether the former manager in fact conspired with his new firm to exploit the transition raises broader questions of unfair competition and concepts of equity.
Not only do acts of “Asset Raiding” harm the raided company, they can also have serious repurcussions to the raiding company. That company can be liable for money damages, including expenses of litigation and possible punitive damages, as well as harm to the company’s reputation in the marketplace.
In today’s economy companies are positioning themselves for the soon‐to‐arrive recovery. Not only do owners and managers need to watch what they have, but be on the alert for those who might try to take what they have. Can anyone say: “Stop thief, Stop!”?
