Using Confidential Information After Leaving Employment

Although most of my employment clients are employees, I do act for several small companies. One such client fired one its sales representatives last year for a number of reasons that are irrelevant to this article. Within three days of being fired, the employee had another sales job with a competitor of my client. Almost immediately, my client noticed that certain of its customers were not calling to place orders. Total revenue had dropped dramatically as these customers never again did business with my client. Through the grapevine within the industry, my client learned that its former employee was making direct solicitations of my client’s customers away from my client, to the obvious economic harm of my client.

This employee eventually brought an action against my client claiming damages for wrongful dismissal. Although we are attempting to settle the employee’s claim, my instructions have been to make it quite clear that if we cannot settle the file, my client will bring a counter-claim against the employee for loss of profits due to his solicitation. The employee’s counsel keeps telling me that we will not be successful with this because the employee never signed a non-solicitation covenant either on the way in or on the way out employment with my client. Is this (Toronto) counsel correct?

In a word, no. The common law imposes an obligation on departing employees, regardless of how or why they left employment, to refrain from taking confidential property or utilizing confidential information, to the detriment of the employer. This common law duty exists regardless of whether or not there was an agreement signed prohibiting such activity. Honest intention of the departing employee, is no defense to this type of claim. Nor is there any justification on the grounds of real or imagined mistreatment by the former employer.

Senior employees of a company have an even higher duty to the employer. This higher duty is referred to as a fiduciary duty. A fiduciary is someone who because of his/her position with the company, in this example, is imbued with a higher trust and higher duty to ensure the well-being of the company. For example, directors, officers, presidents and other high-level managerial employees have a legal obligation not to do what my client’s former employee did; directly solicit business away from the former employer to its detriment. This is particularly so if the employee was involved in any negotiations with departing customers, prior to leaving his/her former employer. Courts are particularly intolerant of employees who plan the taking of customers or use confidential bidding information to under-bid to the same customers after starting their own company upon leaving employment.

Some cases make a distinction between junior and senior level employees in deciding whether the particular use of confidential information or a solicitation of customers will be tolerated. The bottom line seems to be that an ex-employee must not make an "unfair use" of his former employer’s information at the expense of that employer.

If you have left employment to commence a new job with your ex-employer’s competitor and you plan on making full use of confidential information at your new job, think again. Better yet, visit an employment lawyer as each case is decided upon its facts and you may be able to execute some or all of your plans. But you should understand in your situation, what is and is not acceptable