Legal Updates

Absent special circumstances an employee may not be restricted from using a company business opportunity after the company refused it

May 31, 2022
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The CEO of a company, after his resignation, signed a brokerage agreement with the company to bring it potential transactions. The company refused to pay fees on a transaction that the CEO brough contending that he was obligated to bring it to the company while he worked there under his obligation to to forth any business opportunity of the company.

The Court held that the business opportunity does not belong to the company and the CEO is entitled to the brokerage fee. A business opportunity that comes to a CEO while working for a company belongs to the company and the CEO is obligated, under his fiduciary duty, to present it to the company. While it is desirable that such a discussion be conducted in an orderly and documented manner, in a private company with a thin management backbone, and as long as the CEO is not in conflict of interest, there is no legal obligation to do so. As long as there is no use of confidential information or a specific business opportunity of the company, there is no justification for imposing restrictions on the ability of a manager to make use of a business opportunity after termination of employment. Here, the CEO brought the business opportunity, which was then general and undefined, to the company during the term of his employment and the company rejected it, with the discussion on the issue being brought before the appropriate organs of the company, even if in an informal manner. Thus, in the absence of a conflict of interest, use of confidential information or exposure to a special opportunity of the company, there is no justification to deprive the CEO of the ability to make use of the opportunity after termination of employment and he is entitled to the brokerage fee.

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