Courts are aware that when employees leave, business relationships of former employers may also follow suit with the departing employee. Fortunately, the law allows employers to protect these relationships both in contract and in equity. Contact Toronto employment lawyer for consultation.
Modern employment contracts contain non-competition, non-solicitation and confidentiality clauses that restrict an employee’s ability to move and work for a competitor or to solicitor their former employer’s book of business. However, there are some key points to remember when an employee is exiting your company:
1. Employees holding non-managerial and who are not “key” employees crucial to your business are allowed to make their services available to former clients. This can be done however within clear contractual limits that show exactly what a departing employee may or may not do. Employees who have significant responsibility and are “key employees” may be considered fiduciaries and as such, are under a strict duty to act solely in the best interests of their employer, even when exiting the company.
2. While the courts seek to protect the employers right to its clients, departing employees are also protected in terms of maintaining their career.
3. Even if there is no contract, employees cannot solicit former clients of former employers. There exists at common law a duty of good faith and fidelity that protects the confidential information of organizations that may be used by competing businesses when employees switch between companies.
In the case of Computer Enhancement v. J.C. Options, 2016 ONSC 452, two former employees were ordered to pay their employer $132,581 in damages for breach of contract and fiduciary duties. In this case, the employees resigned and began soliciting clients of the employer. The court held that both employees, one who was a junior salesperson and the other who was a “key employee” (with fiduciary responsibilities) breached their common law duty to not solicit clients of the employer.
Given that compensation for the breach of fiduciary duties has a restitutionary purpose, the court looked to the two methods of calculating damages:
(a) disgorging the benefits wrongfully acquired by the defendant
(b) restoring the plaintiff to the position it would have been if the breach did not occur.
Whether a fiduciary relationship exists depends on the following characteristics:
(a) the fiduciary has scope to exercise discretion in decision-making
(b) the fiduciary may unilaterally exercise this discretion to affect a beneficiary’s interest
(c) the beneficiary is vulnerable to the fiduciary holding discretionary powers.
Unless the employee is found to be a key employee with a fiduciary duty, solicitation may occur if there is no contractual clause limiting such action. Ultimately the case reveals the importance of requiring salespersons to sign employment agreements with enforceable non-solicitation clauses and shows the importance of keeping track of lost revenue when former employees have solicited your clients.
If your organization has experienced a loss of revenue due to a departing employees solicitation of your customers, contact top Toronto employment lawyer, Stacey Ball, to help you quantify your losses and rights. If you are an employee being accused of solicitation, our office can help you challenge these allegations.