Employees’ general knowledge is their own to exploit

The battle between employers and their former employees over the individual's right to engage in post-employment competition is an ongoing one. While court decisions seem to sway back and forth, favouring one side or the other at various points in time, one area which consistently favours the individual relates to exploitation of her general knowledge of the industry. 

 

The challenge is in establishing a dividing line between the employer's confidential information and the individual's general knowledge of the business. 

 

The scenario in which this question must be answered is fairly common - an employee leaves his long-time employer and obtains employment with a competitor in the same industry. The former employer is vulnerable to competition by the individual because that person possesses a range of information about the industry, the company, and its customers. The individual proceeds to compete and, in doing so, has a negative impact on his former employer's business.

 

Now, of course, it would be short-sighted of any employer to think that it is immune to this situation. The fact is that employees come and go and, eventually, someone possessing critical knowledge of the business is going to end up working for the competition. Think of a hockey player leaving one team to play for a divisional rival - it's bound to happen sooner or later. 

 

Employers do have certain tools available to minimize the impact of employees joining a competitor. Contractual agreements containing non-competition and non-solicitation covenants are the obvious examples. But, the majority of employers don't make use of such agreements (or, if they do, have implemented versions which could never be enforced in court).

 

When faced with a former employee working for the competition, many employers fall back on the implied legal obligation of all employees not to exploit the former employer's confidential information. Their first step is generally to apply in court for an injunction restricting the former employee's competitive activities.

 

Such an instance played out recently in the New Brunswick Court of Appeal. Landry had been an employee of Imperial Sheet Metal Ltd. for 20 years, ultimately in the position of Vice President of Sales and Marketing. His employment was terminated and he was hired by a direct competitor (producing the same products and competing for the same customers) shortly thereafter. Imperial sought an injunction against Landry, claiming that he was breaching his duty of non-disclosure by using confidential pricing information (to underbid Imperial on contracts with the same customers he had serviced as Imperial's employee).

 

Imperial argued that a former employee armed with knowledge of the special needs and requirements of individual customers, and the means of serving those needs, is armed with his former employer's confidential information. Imperial relied on a 1990 B.C. decision, A.R. Thomson Ltd. v. Stock, for the proposition that information about customers from whom repeat business can be expected and developed over time at the employer's expense is confidential information forming part of the goodwill of the employer.

 

In Landry's case, the New Brunswick Court of Appeal determined that Landry did not breach any duty of confidentiality by using general knowledge of customer information and preferences to solicit their business on behalf of another employer. Preventing Landry from exploiting his general knowledge would have conflicted with his legal right to compete with his former employer and to solicit the same customers within that industry.  

 

Ultimately, the Court of Appeal could not accept that general knowledge of a customer's needs and preferences (at least in the world of sales) qualifies as confidential information. As a result, Imperial's attempt to restrict Landry's activities on behalf of his new employer failed.

 

What are the lessons to be learned, here, by employers? First, the trend towards giving former employees more freedom to compete seems to be continuing, so get accustomed to it. Second, if you wish to have a hope of limiting the post-employment activities of your employees, get some expert advice on implementing reasonable restrictive covenants. Third, and most important, if your employees are likely to be that much of a threat as competitors, consider investing more of your time and resources in keeping them!