When Can A Former Employee Compete?

In the recent case of Optilinx Systems Inc. v. Fiberco Solutions Inc., the Superior Court of Ontario provided a useful reminder as to the circumstances in which a former employee is entitled to compete with his former employer.

In this case, Mr. Foresta had been employed by Optilinx as the project manager of its fiber optic division. He was not an owner, officer or director of the company and he was not bound by any non-competition or non-solicitation agreement. He was not involved in management at a senior level. However, he was regarded by the company as a key employee and, in fact, he was its highest paid staff employee when he resigned in August 2014 after 12 years of employment.

The company’s customers were major Canadian telecommunications companies such as Bell Canada and Rogers. It did not have exclusive contracts with its customers and it competed for their business against other fiber optic cable companies. Mr. Foresta was the company’s main but not its exclusive salesperson with its customers, reporting directly to the company’s owner.

In the months before his departure, he indicated to other employees in confidence that he was planning to leave and start his own business that would compete with the company. He suggested to them that they would be welcome to join him in the new business and that they should seriously consider doing so because his departure would imperil the company’s business success.

In the summer of 2014, he incorporated his own company and obtained $300,000 in financing. He then resigned. Shortly afterwards, four other company employees resigned to join him.

After his departure, he re-entered the fiber optic cable business through his new company.

Optilinx’s case against Mr. Foresta was that he was no ordinary employee, but rather a key employee owing fiduciary duties to his employer. The company sought an injunction to stop Mr. Foresta from doing business with several of the company’s largest customers.

To the court, however, while Mr. Foresta may have been a very important and productive employee, and even the lynchpin to the company’s success, he was not an owner, director, shareholder or a member of management. His importance as an employee did not mean that he was a fiduciary. In this case, the company was unable to establish a sufficiently strong case that Mr. Foresta occupied the position of a fiduciary.

As the court noted, there is nothing to prevent an ordinary employee from terminating his employment, at which point that employee is free to compete with his former employer unless there exists a contract preventing him to do so. On the other hand, a fiduciary occupies a position of loyalty and trust and is not permitted to allow his own self-interest to conflict with those duties. However, even a fiduciary who terminates his employment is entitled to accept business from former clients, although a fiduciary may not directly solicit business from former clients. In this case, even if Mr. Foresta did have fiduciary responsibilities, there was no evidence that he had actively solicited business from the company’s customers.

The situation would have been different had there been evidence that Mr. Foresta had taken confidential information such as customer lists, or stolen trade secrets, from his employer. That type of conduct is unlawful and the court will step in, in those circumstances. However, as this case reminds us, where the departing employee is not a fiduciary, the rules are very different.

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