Employee solicitation as a form of unfair competition

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published on 7 March 2022 | reading time approx. 2 minutes

  

The situation in the labor market of Lithuania and other EU countries is more than heated and companies are struggling to find new employees.  Experienced professionals from other companies are also increasingly being called upon by competitors in different economic fields. Although it is quite common in practice, the solicitation of employees from other companies can be considered illegal and treated as unfair competition.

    

       

Article 15(1) of the Lithuanian Law on Competition stipulates, that it is prohibited to carry out any act contrary to fair business practice where such act may prejudice the ability of another undertaking to compete. The Law provides for an exemplary lists of acts which are considered to constitute unfair methods of competition, including the prohibition of proposing to the employees of a competing undertaking to terminate their employment contracts or to refrain from performing all or part of their duties for the purpose of benefiting oneself or to the detriment of that undertaking.

 

In order to determine whether the solicitation of employees can be considered an act of unfair competition, it is important to establish whether certain elements are present.

  • The first question is whether there has been some form of solicitation, i.e. whether there has been an offer to terminate employment contracts and an offer to take up employment with a competing entity in order to lure employees away. In addition to direct offers to terminate employment, there may also be disguised offers present.
  • It is important to establish whether these actions were carried out by another legal entity. Offers to employees of a competing undertaking may be made either directly on behalf of the undertaking, or through its employees and other connected persons related through family, kinship, business ties, etc. This could also include cases of solicitation of employees through recruitment firms although currently not confirmed by court practice in Lithuania. Thus, the actions of a manager, executive or other employee of another undertaking should be regarded as having been carried out in the name, on behalf of, and in the interests of, their employer, and they should be held liable by their employer for their actions.
  • There must be a relationship of competition between the legal entities. Competitors are those undertakings which are or may be exposed to competition with each other in the same relevant market. There is a number of practical problems here, namely whether non-competitive solicitation is prohibited, in cases where companies are not technically considered to be competitors but compete for the same employees, e.g. in the IT sector. 
  • Whether the unfair solicitation has caused damage to the other company, i.e. whether the proposal was intended to impair the ability of the other company to compete, whether the conduct has harmed the competitor's business and its ability to compete in the relevant market, or whether it has increased the other undertaking's competitive opportunities. This shall be determined by examining the position of the undertakings in the relevant field of business, their ability to compete, the extent to which the departure or, on the contrary, the entry of employees has affected the employer's financial and competitive position and other relevant circumstances.

Although in practice there may be cases where all of the above features are formally present from an external perspective, the transfer of employees to another company will not necessarily be considered as illegal solicitation. The case-law on the subject has taken the view that the mere fact that an employee has terminated his or her employment with one undertaking and has taken up employment with a competing undertaking is not a ground for concluding that there has been unfair recruitment.

 

A presumption of unlawful solicitation may be inferred where there are a number of circumstances that support a presumption of dishonesty, e.g., employees deliberately prepare to move to a competitor, terminate their employment contracts without good cause, immediately take up employment with a competitor after the termination of their employment, the employees have significant experience and qualifications, and the solicitation has resulted in a significant adverse effect on the former employer and has resulted in a gain of an advantage to a competitor.

 

The main legal defense against unfair solicitation is a non-compete agreement with the employee. Such an agreement would ensure that the employee is not employed by a competing entity. However, in order for such a non-compete agreement to be valid, the employer must pay the employee a compensation for non-competing. Furthermore, the non-competition agreement should not restrict the employee's right to take up employment outside the competing entity. In practice, other agreements may indirectly restrict an employee's willingness to move to another undertaking. For example, a confidentiality agreement may be concluded with the employee which prevents the employee from disclosing, transferring or using the employer's confidential information.

 

In the case of unfair solicitation, the rights infringement may be protected either through out-of-court remedies, such as filing a complaint against the other company, giving notice, or by court action. However, it should be noted that, while theoretically the act of solicitation of ever one employee may constitute unfair competition, depending on the circumstances, in the Lithuanian court practice there are no significant cases where the solicitation of only one employee has been considered unfair competition. In general, the case statistics shows that there are not many cases based solely on the misleading of employees, and the majority of cases are based not only on the fact of unlawful enticement of employees, but also on the disclosure, transfer or use of confidential information or trade secrets.

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