Legal Updates

Use by an employee of confidential business information for establishing a competing business constitutes theft of a trade secret and a breach of fiduciary duty

July 31, 2020

A branch manager of a company supplying sales promotion and marketing founded a competing company, solicited employees of his former employer to come and work with him and in a well-coordinated move recruited company customers to the new competing business along with their business.
The Court held that the employees are to pay damages because they acted in bad faith and solicited the company's customers while breaching their fiduciary duties and using confidential and protected business data of the company. A list of suppliers or customers will be recognized as confidential and as a trade secret when it holds "added value" other than the compilation of names of customers or suppliers in the industry, in circumstances where it special effort is required to compile it and there is an advantage in receiving as pre-prepared. The fiduciary duty and good faith obligations applicable to an employee are independent obligations which existence does not require an explicit contractual provision between the parties. Here, the manager in the company prepared the ground to his departure and before he left and solicited two of the company's employees to come and work with him in the new competing business while offering a higher salary. Also, although the manager was responsible for the employees execution of a confidentiality agreement and the two employees undertook to maintain confidentiality, they used the confidential information regarding specific customers, their activity, the consideration received and the manner appropriate for such customers in order to recruit them to come work with the new competing business and then lied about it to their previous employer. Therefore the employees were obliged to compensate the company.