No ethical breach when companies target and hire competitors’ employees

Employees should decide whether to respond to poaching efforts

The practice of “poaching” employees away from another company or rival is not only acceptable, it should be encouraged, according to an ethics study by a Vanderbilt Owen School professor.
“Competition in the product market is good for the market, and the same should be true in the labor market,” said Tim Gardner, co-author of “The Ethics of Lateral Hiring” to be published in a forthcoming issue of Business Ethics Quarterly. Co-authors are Jason Stansbury of Calvin College in Grand Rapids, Mich., and David Hart from the Marriott School at Brigham Young University.

Lateral hiring is defined as the intentional actions of one company to identify, contact and hire an individual or group of individuals from another company, according to Gardner, an associate professor of management who specializes in strategic human resource management.

While the paper concludes that poaching is not unethical, there are downsides, including the loss of training investments and the loss of goodwill. “It comes down to competition,” Gardner said. “Ultimately what the other company is doing is offering a different and potentially better opportunity with the possibility of better benefits and better pay.”

There are times when poaching is not acceptable. For example, employers should not target employees who are bound by a non-compete agreement, which could lead to a breach of contract.

In addition, luring employees away simply to obtain trade secrets from another company is clearly unethical.

Deliberate deception also is inappropriate. Lying to get past gatekeepers or deceiving the employee about potential benefits is out-of-bounds as is obtaining private documents, such as stolen company directories.

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This is not the first scholarly examination of the ethics of lateral hiring. The authors reviewed seven centuries of study about lateral hiring. For example, the Shulchan Arukh, a 16th century compilation of Jewish law, includes a section devoted to the ethics of economic transactions. One issue was the lateral hiring of religious tutors, even if already employed. While similar actions were discouraged in other arenas, those early scholars concluded that since the skills of religious tutors were so valuable and not easily obtained in the labor market, hiring them away was not unethical.

Starting in the 1300s, Gardner and his co-authors extensively reviewed and analyzed centuries of ethics scholarship. “We applied those same ethical frameworks to how we should view competition in the labor markets today. Using those same ethical frameworks, we concluded that poaching should not be limited,” he said.
In the present day, lateral hiring is common in many fields, particularly academics, where a faculty member’s productivity is easily measured and obtainable by outside parties, according to Gardner. For example, it would be easy to determine how many books or papers a faculty member had published.

Gardner personally confronted a lateral hiring issue while living in Utah several years ago. As a founding board member of a public charter school, he was involved in recruiting teachers. The school district had a practice of announcing the teachers of the year, and their e-mail addresses were quickly found on the Internet, so it was easy to obtain information about good teachers that the new school might want to hire, he said.

After making contacts with a number of public school teachers, Gardner was bemused to receive an email from the superintendent of a school district who said the charter school organizers were operating unethically and violating long-standing agreements not to hire teachers away from other schools or districts.

“I would argue that the district and those who had worked together to make those agreements had been unethical,” he said.

Entities declaring an ethical breach following the loss of an employee to a rival are claiming ownership of employees in a way that harkens back to feudalism and indentured servitude, Gardner said.

“When my colleagues and I started this project the first questions we tried to address were: Where did employers get the idea they owned their employees’ energies, efforts and human capital? And why does that line of thinking continue today?” Gardner said.

Based on the authors’ review of historical and contemporary accounts of the employment relationship, they concluded that modern employers don’t generally believe they “own” their employees. But by suggesting, even subtly, that lateral hiring is unethical, employers are misusing ethics to try to prevent rivals from using a common, fair and competitive business practice, the study showed.

Instead, responsibility for entertaining or rejecting an outside offer rests with the employee in question, the authors suggested. Only employees can determine whether, for example, a current employer provides a collaborative environment or whether they have reaped the benefits of educational and training opportunities and owe their current employer more time.

“Another tactic is the so-called ‘gentleman’s agreement’ among firms that discourage lateral hiring. That is not much different from gas stations on the same street corner agreeing to keep the price of gas high,” Gardner said. Informal agreements not to hire each other’s employees benefit the colluding employers to the detriment of the employees. Since the employees are not party to these agreements yet are impacted by them, the practice is clearly unethical, the authors said.

A current-day inquiry into so-called gentlemen’s agreements is unfolding in the national press, Gardner said. The Department of Justice has opened an investigation of Google, Apple, Intel, IBM and IAC/InterActive Corp. and possibly other companies who apparently agreed not to target competitors’ employees for hiring.

“What’s interesting about this is these companies merely agreed not to laterally hire or target each others’ employees. If they applied on their own, it was apparently O.K.,” he said.

The Wall Street Journal recently reported that the inquiry focuses on whether the companies’ hiring practices prevent computer engineers and other technology workers from changing jobs for higher pay or better benefits.

The newspaper quoted antitrust experts who said the Justice Department could argue that an agreement between competitors to hold down labor costs is as much a violation of antitrust laws as an agreement to fix prices.

Gardner often is surprised to find that when he discusses hiring issues with business professionals, most have no ethical qualms about stealing a customer from or losing a customer to a rival. But they believe the practice of laterally hiring employees is ethically “charged” in some way.

“The employee-employer relationship is simply an ongoing but open-ended economic transaction that either party may terminate at will,” he said. “Both parties realize the relationship is not permanent but when a better offer from an outside employer unexpectedly ends the relationship, the original employer takes the loss personally rather than just as a normal part of business.”

Gardner previously has studied how firms respond when their employees have been poached. A developing project analyzes in detail a number of lateral hiring transactions and how they transpired.

He is often asked whether lateral hiring is impacted by a recession. Like most job activity, lateral hiring is down when the economy is bad. But as business picks up, companies may look to the currently employed to boost their ranks again. They may assume, right or wrong, that the most productive employees were retained by companies who survived the recession but experienced lay-offs.

“That principle doesn’t apply to any single individual,” Gardner cautions. “But in the aggregate, if you were a betting person, you might believe it’s better to hire the currently employed, and that is not good news for the unemployed.”

To access the current article, go to:
http://societyforbusinessethics.org/images/Documents/Articles/beq_gardner_stansbury_hart.pdf