When key executives or technical staff move en masse to another hi-tech company, the favoured response in the US is becoming more and more to call in the lawyers.
The most recent example is SAP America filing suit against Siebel Systems, alleging it unfairly hired 27 key SAP employees in an attempt to "injure SAP's business." Yet this is only one in a long line of litigation over the past several years sparked by angry companies after top executives or technical talent walked out the door.
Previously, database software maker Informix pursued but failed to secure a temporary restraining order against rival Oracle after 11 engineers jumped ship to Oracle. The court did not make the employees go back to Informix but did order them not to divulge any trade secrets.
Wal-Mart recently sued both Amazon.com and Drugstore.com, alleging the online retailers hired Wal-Mart executives to steal trade secrets. The companies settled their dispute with Wal-Mart in April, under a deal that called for Amazon to reassign one employee and restrict the work assignments in information systems of eight others.
The main crux of the latest suit, according to Siebel, is that SAP alleges Siebel Systems has engaged in "predatory hiring practices directed at SAP...and unfair competition, which practices are designed to injure SAP's business and damage SAP's ability to compete with Siebel...".
The suit states that over approximately the last 12 months, Siebel has hired 27 SAP employees, including key managers or executives. Former chief executive of SAP, Paul Wahl, and former president Jeremy Coote, both now hold senior posts at Siebel, as well as a host of others from the sales, product and technology units.
A financial analyst at FAC Equities, Rob Kugel, called SAP's lawsuit an embarrassing move by a company that is frustrated by repeated delays in releasing its CRM product suite, which the company has promised for many months. He pointed out, however, that it is unclear how much intellectual property SAP executives took with them when they left.
"You take 27 executives away under those circumstances, and there may be big liability for the company," he said. "There's this idea that there's freedom in the marketplace and employees can go wherever they choose, but they can't use confidential information."
On the defensive
Peter McAteer, an analyst at the Giga Information Group, pointed out that the more an organisation is based on knowledge workers, the greater the threat of those workers being persuaded to move elsewhere.
"To say that too much of the business and its knowledge is wrapped up in employees, and for that reason you wish to restrict them, is partly a defensive move to create stability for the organisation," he said.
McAteer noted that lawsuits have become more common, and companies use the legal system more, because the labour market is as tight as it is: "You see it more in areas where the value of knowledge workers is high. Hi-tech fits that criteria, as well as professional services and law firms."
He added that, "most companies would prefer to negotiate."
Litigation is for losers
Even a company with the law on its side can be crushed by the legal system, although large, deep-pocketed companies have more resources to devote to legal issues. Mark Macgillivray, an analyst at H&M Consulting, pointed out that competition is so hot that in order to protect themselves, companies will see that lawsuits are worth it.
"People are more willing to job-hop, at least in our sector of the market," he said. There is a rapid acceleration of people jumping ship, he added, and the companies have to consider what they can offer to entice their employees to stay. "Without these enticements, they are using the courts to penalise people for leaving," he said.
It appears that more companies are turning to the courts to settle their staffing battles, as the litigation route is increasingly seen by the industry as acceptable. Yet one analyst pointed out, "lawsuits are the last refuge of losers."
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