When does hiring competitors’ employees constitute unlawful conduct?

Unfair competition through employee poaching, as outlined in Article 2598, No. 3 of the Italian Civil Code, occurs when a company systematically recruits employees from a competitor, thereby harming the latter’s economic activity.

What are the requirements to prove unlawful conduct?

To establish unfair competition via employee poaching, several fundamental prerequisites must be met:

• Competitive relationship: There must be an actual competitive relationship between the two companies involved. This means both entities operate in the same or related sectors, targeting a common clientele, even if only potentially.
• Intent to harm (“animus nocendi”): It is essential to demonstrate that the company engaging in poaching had the specific intent to damage the competitor. This subjective element can be inferred from behaviors and circumstances indicating a deliberate intention to harm.
• Potential damage: The act of poaching must be capable of causing harm to the competing company, even if actual damage has not yet occurred. It suffices that the action is suitable to produce negative market effects for the affected business.

These three elements form the foundation for proving the tort of unfair competition through employee poaching. Their concurrent presence is indispensable for supporting the claim in legal proceedings. A notable case illustrating these prerequisites is the judgment of the Italian Supreme Court, First Civil Section, No. 13424, dated May 23, 2008. In this instance, Mr. Rossi was accused of unfair competition for establishing a new company, Alfa S.r.l., while still a partner at Beta S.r.l., with the intent to divert both specialized personnel and Beta’s main client.

Alfa S.r.l., founded by Mr. Rossi, operated in the same sector as Beta S.r.l. and aimed to attract Beta’s clients, particularly Gamma S.r.l., Beta’s primary client.

Evidence showed that Mr. Rossi intended to deliberately harm Beta, as revealed through collected testimonies. Witness Bianchi testified that shortly before leaving Beta, Mr. Rossi offered him a position in the new company, assuring him that Beta would lose Gamma’s business and implying that if he didn’t accept immediately, the opportunity would not be available later. These statements were corroborated by other testimonies which, while not admitting direct pressure, implicitly confirmed Mr. Rossi’s intention to destabilize Beta and recruit its staff.

The sequence of events—the establishment of the new company, Mr. Rossi’s transfer of his shares in Beta, the resignation of five out of eleven employees, including a key figure, and the transfer of Gamma’s contracts from Beta to Alfa—demonstrated that Mr. Rossi’s actions were capable of causing significant harm to Beta, even without the need to prove immediate actual damage. The Italian Supreme Court considered the loss of key personnel and, consequently, the main client Gamma, sufficient to establish the potential damage required for the tort.

This concrete example highlights how the combination of testimonial evidence, demonstration of harmful intent, and the suitability of the act to cause damage are essential to proving unfair competition through employee poaching, making it indeed very challenging to substantiate. Let’s examine the reasons behind these difficulties.

What are the challenges in establishing unfair poaching?

Proving unfair competition through employee poaching is complex because:

• Employee mobility rights (commonly referred to in Italy as “Libertà di circolazione dei lavoratori”, pursuant to Article 4 of the Italian Constitution): The Italian Law protects employees’ freedom to change employers. This principle safeguards workers’ right to switch employers, making it difficult to argue that recruitment itself constitutes unlawful conduct.
• Economic freedom: The Italian Constitution guarantees economic freedom, as established by Article 41. This means companies are generally free to hire staff as they see fit. Restricting these practices requires a very strong legal justification.

As we’ve seen, demonstrating the malicious intent of the company engaging in poaching is challenging. This requires providing concrete evidence that the poaching act was carried out with the specific intent to harm the competitor.

One of the most delicate and complex aspects of employee poaching involves know-how. This term refers to the skills, knowledge, and experiences that employees bring with them when changing employers. Know-how can be of two types:

• Corporate Know-How: This type of know-how is closely tied to the company and often covered by confidentiality agreements. It includes processes, technologies, and strategic information specific to the company and not easily obtainable externally. Poaching employees with the goal of transferring this type of know-how can constitute an act of unfair competition.
• Employee Know-How: This encompasses the skills and knowledge that employees have developed during their careers, which can be considered personal assets and not exclusively linked to the originating company. If the know-how is primarily the result of personal experiences and individual competencies of the employees, poaching may not constitute an unlawful act. However, if the objective is to materially extract strategic know-how and confidential documentation en masse, then the risk of constituting an unlawful act increases (for further reading: “When former employees misappropriate know-how: the ‘DeLorean’ case”).

These factors make proving “animus nocendi” and potential damage even more complex, as it is necessary to demonstrate not only malicious intent but also that the extracted know-how was indeed an exclusive and confidential resource of the harmed company, along with the methods by which such documentation was collectively extracted and transferred. The presence of confidentiality agreements and the nature of the transferred information play a significant role in this assessment.

How has case law evolved in this area?

Case law has progressively objectified the requirement of “animus nocendi”, recognizing the tort in the presence of objective circumstances indicating behavior contrary to the principles of professional fairness, such as:

• Direct transfer of employees.
• Poaching of a significant number of employees.
• High-level roles of the poached employees.
• Poaching occurring within a short time frame.
• Difficulty in quickly replacing the poached employees.
• Use of improper methods in the poaching maneuver.

A recent example of this evolution is a ruling by the Business Court of Rome, filed on September 29, 2023. In this case, a company brought an action against another, accusing it of unfair competition through employee poaching.

The Court found that despite the accusation, there was insufficient evidence of “animus nocendi”, noting that only three employees had been hired by the defendant and that there was no significant impact on the plaintiff’s organizational structure. Moreover, the Court affirmed the legitimacy of employee mobility and economic freedom, in accordance with Articles 4 and 41 of the Italian Constitution. This aligns with the position of the Italian Supreme Court, which has held that: “Animus nocendi is presumed to exist whenever the poaching is conducted in a way that is unjustifiable under professional fairness, and can only be understood as aimed at harming the competitor’s organizational and operational structure” (Italian Supreme Court, Section I, December 29, 2017, No. 31203; September 4, 2013, No. 20228; May 23, 2008, No. 13424).

What are the objective criteria for assessing employee poaching?

To assess unfair competition through employee poaching, and particularly the intent to harm the competitor, several objective factors are considered:

• Number of employees involved: A high number may indicate malicious intent.
• Roles of the employees: Recruiting high-level personnel is especially significant.
• Timing: Poaching that occurs within a short period may suggest an orchestrated plan.
• Difficulty of replacement: If poached employees are hard to replace, the damage to the company is more substantial.
• Methods used: Unfair recruitment practices may strengthen the case for unlawful conduct.

A significant case illustrating the complexity of proving unfair competition is the Italian Supreme Court, Civil Section I, Order No. 22625 of July 19, 2022. In that case, a company operating in the vocational training sector accused a competitor of unfair competition through employee poaching. The Italian Supreme Court held that employee poaching may constitute unfair competition when the diversion of personnel is carried out in a manner that cannot be justified under the principles of professional fairness, and can only be explained by assuming that the actor intended to harm the competitor’s organizational and operational structure.

In that case, the Italian Court of Appeal rejected the claim, reasoning that freelance professionals collaborating on training courses could not be considered as poached employees, since they were free to work with other companies in the same field. It also found that there was no depletion or harm to the company’s operations, and no evidence that the hiring party was aware that the act was capable of causing harm. The employees’ expertise and professionalism, although valuable, were not so exclusive as to render them essential.

The Italian Supreme Court therefore dismissed the appeal, reaffirming that unfair competition through employee poaching must be assessed in light of objective criteria and specific circumstances, and that “animus nocendi” cannot be presumed without adequate supporting evidence.

This example demonstrates that whether employee poaching amounts to unlawful unfair competition depends heavily on the objective circumstances of the case and the actual impact on the harmed company. All relevant aspects must be carefully evaluated, substantiated, and presented to the presiding judge with the support of an experienced attorney.