If you depart to start your own firm, be forewarned

Employers who want to keep departing employees away from their customers must plan ahead with well-written contracts.

In addition, the employee has to get something for signing the contract, either the job in the first place or some sort of raise or bonus.

Jack and Jill worked for a company that sold customized promotional products to car dealerships. Things such as key chains and golf balls.

Jill had worked there six years and was a sales account manager.

Jack was the operations manager. He supervised the shipping department and reviewed product orders.

In the summer of 2015, they both resigned and started a competing company. Jill had signed a confidentiality agreement with the employer when she got promoted, as well as an agreement that she would not compete for 12 months after she left. Jack had signed a confidentiality agreement.

When the employer took Jack and Jill to court, it claimed they were exploiting a confidential master contact list of 8,000 car dealerships in North America. It claimed that separate and apart from the written agreements, Jack and Jill had a duty of fidelity not to disclose or exploit confidential information.

All employees have that obligation, but there was no evidence whatsoever that Jack and Jill had taken any lists, documents or information in any form.

The judge found that they did not need those lists to start a competing business. There are approximately 20,000 automobile dealers in North America.

The employer’s master list only included about 40 per cent of them.

Jack and Jill did not take it, and anyone who knows how to Google can collect a list of dealerships.

The judge said that for something to be considered confidential, there has to be sufficient originality to it such that it is not widely known.

Selling promotional items to any kind of business does not take a unique skill, just good salesmanship and persistence.

The employer also argued that Jack and Jill were fiduciaries, meaning that they were so crucial to the organization that they owed an obligation to refrain from soliciting clients after they left for some period of time.

But neither Jack nor Jill, however, was involved in decisions that affected the employer’s business in a significant way. Neither had the power to hire or fire. They were not corporate officers or directors. Any significant expenditure or decision required the boss’s approval. They did not owe a fiduciary duty to the employer.

Importantly, the judge found that the employer’s business was not particularly vulnerable or exceptional. Its clients were not faithful and did not buy promotional items from the employer exclusively. Everyone shopped around and got the best price they could. Everything that the employer sold could be found elsewhere, with some looking.

Then the judge turned to Jill’s non-competition agreement. It was badly written, ambiguous and vague for a number of reasons. Most importantly, however, in most provinces in this country non-competition clauses signed by mere employees (rather than shareholders or owners), are only enforceable in exceptional circumstances.

The translation of that case law in real life is that non-competition provisions are hardly ever enforced. Rarely do you see any employer even try to do so.

When one or more employees leave a company to compete, especially a smaller company, the employer is often feeling angry, betrayed and upset. I have seen that emotional reaction even when they started their company in the same manner: by leaving a competitor and going out on their own.

Sometimes, even though lawyers tell them their chances of success are very limited, they spend the money on a lawsuit anyway. I call that “mad money.”

Other times there is a dispassionate business interest at stake. Sending this kind of indirect message to the remaining employees (that if they leave and try to take customers with them, they are going to be spending some of their new company’s assets on lawyers) can have a chilling effect.

Jack and Jill successfully defended this claim and were awarded some of their legal costs. They got to stay at the top of the hill. (I could not resist.)