Protect Your Business Against Unfair Competition From Former Employees

by Lior Samfiru


Friday, June 20th, 2014 at 1:29 pm


Differentiating your business in the marketplace, establishing a name and reputation, and competing for customers or clients takes significant time and effort. Therefore, it can be especially frustrating, not to mention potentially damaging to your business, to face unfair competition from former employees who, in departing from your organization, take with them valuable information and knowledge of your business strategies and practices – information which can immediately be exploited to unfair advantage.

Fortunately, there are steps that an employer can take to protect against the possibility of former employees using inside information to replicate winning business strategies and luring away hard-won clientele. However, as many employers have found out the hard way, in a legal dispute over what employees can and cannot do after leaving their employment, Ontario courts will not be sympathetic towards employers who have not done their homework.

Many employers make the mistake of requiring employees to enter into employment contracts or other types of written agreements (e.g. non-competition agreements) that place unnecessary or unreasonable restrictions on post-employment activities. Such agreements may not be worth the paper on which they’re written.

The good news is that is that it is possible, either through carefully crafted employment contracts or special-purpose agreements, to impose contractual restrictions that will be effective, that will survive the employment relationship, and as necessary, can serve as the basis for obtaining an injunction against a former employee (or his or her new employer) or for issuing a legal claim for damages suffered as a result of an employee’s breach of such an agreement.

For example, one protective measure that a business can take is through the use of confidentiality agreements, either as part of a broader contract of employment or as a stand-alone agreement. Done correctly, such an agreement can identify the types of information that will be considered as confidential or proprietary, and impose tight restrictions one the use and disclosure of such information, both during and after the end of the employment relationship. This type of agreement can also impose explicit obligations on departing employees in terms of returning documents, electronic files, and so on. Prepared correctly, such an agreement can provide a legal basis for taking action against an employee who fails to adhere to his or her obligations as specified.

While the ideal time to introduce this type of agreement is at the time of hire, it is possible to introduce and require existing employees (even long-serving employees) to enter into binding agreements. However, this is another area in which employers often make mistakes that completely undermine the effectiveness of the documents they ask existing employees to sign.

Depending on the nature of the business, other protective measures can be recommended, such as requiring employees to enter into agreements that restrict their ability to contact and solicit clients, at least for a reasonable period of time, during which your business can take steps to solidify client relationships.

Regardless of the type of agreement employed to protect your business, it may not be enough to ensure that the documents used are expertly prepared. In the face of a breach, it may be necessary to take action, such as seeking an injunction or pursuing a legal claim – not only to prevent or recover losses, as the case may be, but to send a strong message to both current and former employees that the business is serious about protecting its interests.

Whether through the use of a comprehensive confidentiality agreement, a non-solicitation agreement, or some combination of the two, carefully crafted and properly introduced, such agreements can protect your business interests against unfair competition from unscrupulous ex-employees who may try to exploit the inside information they have gained at your expense.

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