Author: Daniel A. Lublin
Law protects employers against departing employees
Employment is a two-way street. Just as they can be dismissed without notice, employees are not “owned.” They are always free to leave. However, disputes often arise when they try to take their clients with them.
Since clients’ affiliations often lie with the relationships that are built and the key employees who have built them, courts permit employers to protect their clients through contractual limits on post-employment competition and solicitation.
But what happens when there is no contract at all?
To many clients, professional engineers Robert Whyte and Bill Dainty were the “face” of their firm, Aquafor Beech. As well, their work accounted for a quarter of the company’s revenue.
In the fall of 2003, Whyte and Dainty left Aquafor and established their own competing engineering firm, Calder Engineering. Many of their clients remained with Aquafor; however, a few decided to leave and continue their relationships with Calder along with two more Aquafor employees.
Aquafor suspected that Whyte and Dainty had acted inappropriately by secretly planning to leave and then improperly soliciting clients and employees, among a handful of other claims argued a recent trial in Toronto.
However, Aquafor did not have employment contracts with Whyte and Dainty that prohibited them from working for a competitor or soliciting its clients. Without contracts, there is nothing to stop ordinary employees from leaving and then competing for business. But this is not the case for fiduciary employees, who have obligations to their former employers even after they leave. Fiduciaries are key employees whose actions can render their employer vulnerable both during and after their departure.
Since Whyte and Dainty played significant roles at Aquafor, the court ascribed to them fiduciary titles, which meant that they could be liable to Aquafor for its lost profits if they had competed unfairly. However, there was simply no evidence of unfair competition, so Aquafor’s case was dismissed. Some of Aquafor’s clients came to Calder because of its expertise and not because they had been persuaded to leave.
Even without contractual covenants prohibiting competition, Canadian employers may enjoy some protection from former employees. However, it is only in certain circumstances. Those employees entrusted with control over the business or even key aspects of it may be viewed as fiduciaries. Although these people are free to leave and work for a competitor, they may still be required to act in their former employer’s best interest even long after their departure.