Legal Action Against Departing Employees

Departing employees can pose a competitive threat to an employer in a variety of ways. They may have had access to sensitive, confidential company information such as manufacturing processes or customer list. By virtue of personal relationships, a departing employee moving to a competitor may take a client out the door as well.

Non-compete Agreements

If an employer has a signed non-competition agreement from the employee, the employer may sue. The courts will honor such agreements if they are found to be reasonable both in scope and in duration. One court found, for example, that an agreement prohibiting an accountant from taking on any of the former employer's clients for a period of 18 months was reasonable as to duration but overly broad in scope. The court found that prohibiting work for clients whom the accountant had met and known during the time of his employ was reasonable. It was not reasonable, however, to deny him the right to work with former clients of his former employer whom he had not known or whom he had known previous to his employment.

Trade Secrets

If a former employee is utilizing the employer's trade secrets, the employer can seek relief under the state trade secret law. Information regarding customer's accounts such as profit margin and customer reliability could be considered trade secrets because they might provide unfair advantage to a competitor.

Protected material need not be in writing; a memorized customer list was found to be a trade secret. If an employer has signed an agreement with another company under which the other company has agreed not to hire certain employees, the court will honor the contract if the employer has a substantial investment in the ‘human capital', that is training, loss of sensitive functionality and so forth.

In a situation where a former employee has taken a client with him or caused that customer to take his business elsewhere, the employer may sue for interference with a contractual relationship. The success of the suit will turn on the employer's ability to prove that the employee used confidential information or leveraged a relationship developed during the period of his employment.

Competition During Employment

Another potential violation can be found in the instance where a former (or current) employee has competed against the employer during the time of his employment. In this situation, the employer may sue for ‘breach of the duty of loyalty'. One such claim involved an employee who developed a business while working for an employer that provided services to the employer's competitors. Once again, in this situation the employee is more likely to be found at fault if the employer had put him in a position to learn the business and develop clientele.

Corporate Officers

Where the former employee was a corporate officer, there is potential for a claim of breach of fiduciary duty to the corporation. This duty specifically prohibits an officer from competing against his own corporation; further, it requires the officer to provide any business opportunity to the corporation before pursuing it personally. Absent a non-compete agreement, however, they are free to compete upon resignation despite their lofty status with the former employer.