Making the most of hiring from competitors

 

Getting the contract right will benefit both the business and the recruit

In certain sectors, including law and IT, there are signs that employers are increasingly looking to lateral hires (sometimes with their team) to fill senior positions.  Indeed in a recent survey carried out by Fox Williams and Byfield Consultancy 71% of the top 200 UK law firms cited recruiting a team as the best way to increase profits. 

Lateral hires are employees or partners who are hired from another organisation (often a competitor) to fill a role at a similar level, often on a similar remuneration package.  Many lateral hires start their new roles in or around September as it coincides with the start of the school year, and also means having at least 6 months to make an impact before the end of the financial year in many companies.  It is also common for senior employees to re-evaluate their career options during the summer holidays and to start looking for new opportunities in the autumn.  

Lateral hires, as a way to fill senior roles, have a number of advantages including enabling a company to grow strategically, to fill immediate gaps (without training existing employees), to increase revenue and to take advantage of the lateral hire’s knowledge, skills and contacts.  There is often also prestige associated with attracting a lateral hire to join an organisation from a competitor.

However, recruiting and retaining lateral hires is not without its difficulties.  To maximise the chances of success it is key to get the recruitment stage right.

By the time an organisation approaches or responds to someone they are interested in meeting as a lateral hire some preliminary research will usually have been undertaken, including looking at a person’s online presence and speaking to others in the industry to find out their views of the person.  This should be handled sensitively to prevent the current employer finding out the person is considering leaving.  Certainly formal references should not be taken up or the existing employer approached until the candidate has agreed to this, which will usually be after the new offer has been agreed and the current employer informed.

Negotiations to get to that stage can be time consuming.  However, it is important to strike a balance between amicable discussions so as to not put the new employee off joining, whilst ensuring that the employment contract is robust and protects the business. 

Early on in discussions the new employer should check the candidate’s notice period and the length of any garden leave.  Post termination restrictions, which may prevent candidates from joining a competitor for 6 to 12 months, should also be checked.  One of the key attractions to lateral hires is the hope they will bring a portfolio of existing clients with them.  However, if there are restrictions preventing the candidate from soliciting or dealing with such clients this needs to be factored in, as the individual is less likely to be profitable during that time and less likely to be able to bring those clients with them.  Employers may wish to consider encouraging the candidate to negotiate with their existing employer to obtain permission to join, and bring certain clients with them.  In some sectors this is common as it is acknowledged the new employer and employee will then adhere to the remainder of the restrictions. 

Even if the candidate is not subject to restrictions, they will be bound by confidentiality obligations so making a lateral hire should never been viewed as a way to obtain confidential information about competitors.

When negotiating the employment contract, remuneration is usually agreed first and areas such as signing on bonuses, annual bonuses and Long Term Incentive Plans are often heavily negotiated.  There may also be discussions around the benefits offered, especially aspects such as sick pay, holiday and pensions.   Employers should take care to ensure that the wording in contracts is tailored to suit the particular deal and that loose promises, such as putting share schemes, are not recorded in the contract.

Employers should also ensure that the agreed contract includes adequate protection for the business should the relationship end.  This includes well drafted restrictive covenants, bearing in mind that such restrictions could constitute a restraint of trade and, as such, are only enforceable when reasonable to protect a company’s legitimate business interests.  Non-compete provisions are particularly difficult to enforce.

There should be clear provisions in the contract setting out when the employee may be dismissed summarily.  Also, in the case of dismissal with notice, the employer should have the right to place the employee on garden leave and to pay in lieu of notice.

Naturally employers do not want to focus too much at the outset on the possibility of the role ending.  However, failure to address these points can prove very costly for businesses. Establishing clear parameters and expectations from the outset will help ensure that the delicate negotiations involved in securing lateral hires pay off for both the business and the new joiner in the long term.

By Kerry Garcia, Partner & Head of Immigration
First published in People Management, September 2016

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