Can My Startup Get Sued If a New Hire Brings Trade Secrets From Their Old Job?

You just hired a great engineer from a competitor.

Six months later, a subpoena lands on your desk.

Your first reaction may be, “We never asked them to bring anything.”

That may not be enough.

A company can face trade secret liability if it knew, or reasonably should have known, that a new employee brought confidential information from a former employer. The company does not necessarily have to use the stolen material for the issue to arise.

The Deel v. Rippling dispute is a current warning. What began as a civil trade secret dispute had, as of January 2026, developed into a DOJ criminal grand jury investigation over allegations involving an employee who allegedly stole trade secrets between the two HR technology companies.

For a scaling startup, aggressive hiring without a proper onboarding process can create a problem far beyond the employee’s first day.

Your Company Can Have a Problem Even If You Never Asked for the Information

This is the part many founders get wrong.

You may never tell a new hire to copy source code, download customer lists, or take confidential documents from their previous employer.

But trade secret liability can still become an issue if your company knew or reasonably should have known that the employee brought protected information with them.

The “should have known” standard is where your onboarding process matters.

If a reasonable hiring and onboarding process would have identified the problem, simply saying that nobody at the company explicitly requested the information may not resolve the issue.

Your company needs a process that tells new employees clearly what they can and cannot bring from a former employer.

Trade Secrets Are More Than Source Code

Founders often hear “trade secrets” and immediately think about proprietary software.

The category can be much broader.

Information a new hire might improperly bring can include customer lists, pricing data, product roadmaps, technical designs, proprietary processes, algorithms, business methods, and login credentials for a former employer’s systems.

That means the risk does not apply only to engineering hires.

A salesperson could arrive with a former employer’s customer list. A product manager could bring an internal roadmap. An engineer could retain source code or technical designs.

The hiring process needs to account for all of these situations.

Why This Matters More When You Are Raising or Selling

Trade secret disputes are already expensive.

The problem can become much more serious when your startup is preparing for a fundraising round or acquisition.

A trade secret claim can trigger diligence questions about your hiring practices, intellectual property ownership, employee conduct, and internal controls. A DOJ subpoena or criminal investigation can create an even bigger problem and potentially delay or derail a transaction.

Investors and acquirers want to know that the company actually owns what it claims to own.

If an important engineer or product leader arrived with questionable materials from a competitor, that ownership story becomes harder to defend.

Civil Liability and Criminal Risk Are Different

A civil trade secret lawsuit from a competitor is serious.

A criminal investigation is a different level of exposure.

The Deel v. Rippling matter demonstrates how the two tracks can exist at the same time. A company can face a civil dispute while the alleged conduct also attracts federal investigative attention.

That is why founders should not treat trade secret controls as a minor HR formality.

A simple process before an employee starts can help create evidence that the company took the issue seriously.

Put the Expectation in Writing

One practical step is to obtain a written confidentiality attestation from new hires.

The employee should confirm that they have not retained confidential or proprietary materials from a previous employer and will not bring those materials into your company.

That document does not eliminate every risk.

But it creates a clear record that your company addressed the issue and communicated its expectations before the employee began working.

You should also train hiring managers to recognize warning signs. If a candidate says, “I can bring our old pricing sheets,” or “I still have access to the competitor’s system,” that should immediately stop the process and trigger legal review.

Common Founder Mistakes

• Hiring from a competitor without an onboarding check: Founders may move quickly when they find an experienced engineer, salesperson, or product leader from a close competitor. The hiring decision itself is not the problem. The problem is failing to ask whether the person still has files, code, customer information, pricing documents, or system access from their former employer. A clear onboarding process should address these issues before the employee starts.
• Failing to obtain a written attestation: Many startups rely on a general confidentiality agreement and never obtain a specific written confirmation that the new hire has not retained confidential information from a previous employer. That leaves the company without a clear record showing that the issue was raised and addressed during onboarding.
• Treating competitor hiring as only a recruiting strategy: Hiring talented people from competitors can be an important part of scaling. But aggressive recruiting can create trade secret concerns if the company does not control what those employees bring with them. A competitor claim can become a serious diligence problem when the startup is trying to raise capital or complete an acquisition.
• Assuming good intentions eliminate the risk: Founders may believe there is no exposure because nobody at the company intentionally requested stolen information. But the relevant concern can also involve what the company knew or reasonably should have known. A strong onboarding process helps prevent questionable materials from entering the business and creates evidence that the company took reasonable steps to avoid the problem.

10-Minute Hiring Self-Check

Before your next hire from a competitor, ask:

• Does our onboarding process specifically address confidential information from previous employers?
• Does every new hire sign a written confidentiality attestation?
• Have we trained hiring managers to flag offers to bring files, customer lists, code, or other proprietary materials?
• Do we know which recent hires came directly from close competitors?
• Would our current process have identified the conduct alleged in the Deel v. Rippling matter?
• Could we demonstrate this process to an investor or acquirer during diligence?

If I can’t answer yes across the board, my next hire is my next exposure.

Bottom Line

Your startup does not need to ask an employee to steal trade secrets for a serious problem to develop.

If the company knew, or reasonably should have known, that a new hire brought confidential information from a former employer, the company can face exposure.

The Deel v. Rippling dispute shows how quickly an aggressive hiring strategy can develop into a much larger legal matter.

The solution starts before the employee’s first day.

Ask the right questions. Get the employee’s written attestation. Train hiring managers. And make sure your onboarding process creates a clear record that your company does not want or need a competitor’s confidential information.

Is Your Hiring Process Creating Trade Secret Risk?

Schedule a free 30-minute call with our team to review your hiring and onboarding process and discuss your concerns.

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