Fidcuiary Duties

Quite often, sales employees whose employment has concluded often find subsequent employment within the same field and as such, need to know whether they can continue to work with the customers that they dealt with at their former employer. Assuming they did not execute a restrictive covenant, what limits if any, does the common law place upon them?

The Ontario case KJA Consultants Inc. v. Soberman (2003) sheds light on this situation. Soberman worked for KJA for 13 years. His last position was General Manager responsible for marketing and sales. Clients dealt with him primarily. When Soberman left his employment he started a consulting business in competition with KJA. He sent a letter to his former KJA clients informing them of his new venture. Eventually, Soberman took over KJA's largest client and 16 other customers. There was no non-competition agreement between KJA and Soberman. KJA sued Soberman claiming that Soberman had breached his fiduciary duties to KJA.

The trial court made a finding that Soberman had not solicited KJA's customers but rather, they approached him. The court stated that the KJA customers that switched their contracts to Soberman, did so because of Soberman's familiarity with the contract in question and with the details of the account. The court stated that Soberman was familiar with the client and the particular contract only because of his association with KJA and that without that knowledge, the client would never have retained Soberman after he had left KJA. Accordingly, the court held that Soberman breached his fiduciary duties owing to KJA when he used the knowledge that he had acquired while at KJA, "to take a significant asset away from them."

This case is a departure from the previous position that outgoing employees could go into direct competition with their former employer or even advertising their new business venture. Previously, the only prohibition on departing fiduciary employees was that they could not directly solicit their former employer's customers for a reasonable period of time following their departure. How long that period of time should last, has been the subject of many cases.

The KJA case states that departing employees are even more restricted in the marketplace. If they are "face" of their former employer and have knowledge of customers' contracts or specifics on which knowledge the customer relies, they likely should not accept a customer's solicitation that they take over their accounts or contracts.

If you are an employee who finds him or herself in Soberman's position, please contact me to discuss your particular situation.