Legal Updates

A breach of fiduciary duty by resigning employee may lead to limitations on freedom of occupation even in lack of contract

July 31, 2020

Three employees resigned and commenced working for a competitor established by one of them, taking with them several clients, and continued working with such using information acquired during their employemnt.
The Labor Court held that the employees and their new employer are to compensate the employer. Client lists, as well as, contacts, work processes and methods, pricing policies and the likes, constitute trade secrets or, at the very least, an interest worth defending. While employees are entitled to resign their position and continue working in their own field, this right does not negate the employer’s right to protect its property and demand restrictions of the employee’s freedom of occupation when circumstances warrant it. An employment contract, being a continuous relationship contract, is unique, and based on fiduciary obligations and the duty of trust. When those are violated, even in the absence of a contractual stipulation limiting occupation or imposing a cooling-off period, there is justification for imposing limitation on the employee’s freedom of occupation. Here, the combination of the company’s client list, the effort required to recruit them, the personal contacts with the client and its principles, as well as the work process and methods used by the company – all constitute trade secrets. That, along with the actions taken by the employees to transfer the clients, constitute a clear breach of their fiduciary duty, in a manner which justifies placing limitations of their freedom of occupation and obligating them to pay damages.