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TAKING BOSS, CLIENT CAN COST $$$

A man we will call Adam worked for an elevator company for 13 years. He resigned his employment after having been the general manager for 4 of those years.
 
Adam went into business competing against his old employer and he was completely free to do so. He had never signed a non-competition agreement (promising not to compete for a certain period of time after he left) and even if he had, the courts will not usually enforce those agreements.
 
A few months after he left he was contacted by his former employer’s biggest client who asked him if he would take on their work. He said yes and his former employer sued him for damages for breach of fiduciary duties.
 
“Fiduciary duties” are the obligations an employee has in relation to their employer whether the employee has signed a contract or not. Fiduciary duties not only include the obligation to not act in competition or in conflict with your employer while you still work there but can also include an obligation, for some time after you leave your employment, to refrain from soliciting the old employer’s clients to take away their business. These obligations are only held by people who had important positions within the organization and had significant customer contact.
 
Since Adam’s new client called him and he did not solicit that client directly, Adam should have been okay. It turns out, however, that Adam ended up in front of a judge that decided to expand the law in this area.
 
At trial, it became clear that the client Adam took would not have gone to any other competitor but Adam.  If Adam had said no to the job, it was quite clear that the client would have stayed with his old employer. It was also clear that the only reason the client called Adam was because Adam had intimate knowledge of their needs as a result of his employment with his former employer.
 
The judge found that Adam had breached his fiduciary duties to his former employer by agreeing to take on the work, even though he never solicited the client. Adam ended up paying over $60,000 for having accepted the work.
 
The scary thing about this case is that if Adam had called me the day he got the call from his former employer’s client , I would have told him to go ahead…take the work. I would have told him that it was a free marketplace. If he had not solicited or contacted the client in any way to try to get the work, he was ok. To be fair, if he had mention that if he did not take the work the client would stay with his old employer, I might have hesitated a little and told him the law in this area is constantly changing and anything is possible.   But until Adam’s case, there were no court decisions indicating that accepting un-solicited work could be a breach of fiduciary duties.
 
The Court of Appeal has said that non-competition agreements prohibiting employees from competing at all will rarely be enforced. If Adam cannot accept work from somebody he did not even solicit, he might as well be living under a non-competition agreement. 
 
Just when you think you know the law, however, it changes.  The law with respect to the “fiduciary duties” of former employees who are in competition with their employer has always been grey. The key to Adam’s downfall was the fact that the client said they would not have gone to any other competitor if Adam had not taken the work. If the client had gone to court and said that they were sick and tired of Adam’s former employer and were leaving regardless, the outcome would have been quite different.
 
As published in the Hamilton Spectator, November 2, 2004
 
Ed Canning
Ed Canning
P: 905.572.5809
ecanning@rossmcbride.com