With the changing economic times, more employers are finding they have to downsize. This may lead to concern about competition, solicitation or the misuse of confidential information by former employees. Such issues can be addressed at the start of employment, by negotiating restrictive covenants that impose confidentiality, non-competition and non-solicitation obligations on the employee. But often, due to oversight, a desire to avoid conflict or because the employee won’t agree, employers do not negotiate such covenants. This article addresses some common questions employers ask when an employee leaves without any restrictive covenants.
Q. Can an employee compete with me after he or she leaves?
A. Generally, yes. Unless the employee is bound by a restrictive covenant, or the employee is a fiduciary in a high position of trust, then the employee can compete with you the day after he or she stops working for you.
Q. Does it make a difference if the employee is a trusted senior executive?
A. In certain circumstances, employees in whom an employer puts particular trust by virtue of their job duties may owe a higher “fiduciary” duty to the employer. This can include a duty not to solicit customers or to take maturing business opportunities of the former employer. The precise content of a fiduciary duty, and the circumstances under which such a duty exists, depend on the facts of each case.
Q. Don’t employees have to give reasonable notice of resignation just like an employer has to give reasonable notice of termination?
A. Yes, employees have a duty to give reasonable notice of resignation, failing which they could be ordered to compensate the employer for resulting damages or lost profits. For example, in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., former employees were ordered to pay damages of $40,000 for failure to give reasonable notice of termination of employment. This was the amount of profits they would have contributed to their former employer during the 2.5-week notice period.
However, the Supreme Court of Canada has confirmed that employees are not prevented from competing with their former employer during this notice period. As well, an employee’s obligation to give reasonable notice is generally for a much shorter period than the employer’s corresponding obligation.
Q. Can employees use confidential information they may have of my business to compete after they leave?
A. No. Even without a restrictive covenant, employees have a general duty of confidentiality that prohibits them from making use of or disclosing the confidential business information of their employers or former employers. However, this does not necessarily prevent them from taking their own client contact information, particularly where the client’s interests so indicate.
Q. How can I stop them from using my confidential information after they have left?
A. If you get word that an employee is misusing your confidential information, legal counsel can quickly apply to court for an injunction and claim damages for any losses you may suffer due to the abuse of such information.
Q. What is the best way to protect my interests?
A. An employment agreement is a powerful tool for employers and this up-front investment can save significant costs down the road. When hiring employees, consider whether you will be vulnerable to their solicitation of businesses, customers and other employees if they leave. If so, negotiate a restrictive covenant in their employment agreement. Consider the nature, scope and duration of a covenant you need to protect your interests. The less onerous a covenant is, the more likely a court will be to enforce it ? and employees will be to agree to it.