Hard for companies to prevent former star employees from competing

Firms are usually fearful when their star employees jump ship and use their knowledge to help rivals, but it’s a tricky threat to deal with, as one company in Singapore knows all too well.

The company’s revenue fell after the key staff member left to become a competitor, but it found that it is hard to blame the departing worker for causing such losses.

It’s all too easy for aggrieved employers to accuse such staff members of stealing and misusing secret business data in their new jobs, yet such allegations can stick only if there is proof showing that illegal acts were committed and that these led to actual losses.

But short of being caught red-handed for pilfering business data, it is tough to prove such misdeeds because the law also needs to be fair to employees who are entitled to use any skills or knowledge learnt to further their own careers elsewhere.

This was what the company here found out when it failed to make its former general manager accountable for losses after he left to form his own firm to compete with his former employer.

The parties were both running the same business of providing foreign domestic workers to households.

What made the case particularly sore for the employer was that the manager had been secretly making plans to start his own outfit for almost a year, action that was blatantly in breach of his employment contract.

His employer was blissfully unaware of the act of betrayal because before the man resigned, the firm had plans to reward him by giving him a chance to share 20 per cent of the business profits.

But things started to turn sour after he left, and his former employer sued him for allegedly misusing existing customer data and diverting business worth over $700,000 to his new company.

High Court Judge Teh Hwee Hwee noted that the suit “was fuelled by a sense of betrayal and indignation, and the hard feelings were made more acute because the principal characters in this dispute had shared relationships outside of business and work”.

In particular, the manager acted behind his employer’s back and breached his employment contract when he involved himself in setting up his own business while he was still an employee.

Despite this, the judge found no evidence that he misused confidential information or that he had conspired to injure his former employer’s business interests through unlawful means. Indeed, Justice Teh described the employer’s case as “anaemic” because it could not show what losses had been suffered due to the manager’s breaches of contract.

For instance, although it claimed that the former manager had misused its business data, it could not identify a single existing customer or domestic worker who had been diverted to the new business.

As a result, the employee was ordered to pay only a nominal compensation of $2,000 in total for breaching his employment contract while the main complaint against him was dismissed.

There are three important lessons that employers and employees should know relating to their rights and responsibilities in relation to a career switch.

Taking confidential business and customer data

If you are planning to quit to join a competitor, the last thing you should do is to log in to your business database and start copying files that would help you in your new job.

If you do so, the law will deem you a “taker”, or a worker who takes business information illegally, meaning you can be sued and asked to compensate your former employer.

But the former employer must prove such wrongful acts. This could be by producing forensic computer evidence that files had been downloaded illegally or security camera footage of the worker sneaking into the office to copy files.

In this case, as the former manager had access to all business and customer data, the company claimed he had taken such information and then used it to increase business in his own company.

But the former employer could not show that its company system had been accessed illegally and files downloaded by the manager.

Justice Teh noted that the firm did not produce any evidence such as “a forensic test result, a picture or a document” to prove that the former employee took information from the company database.

In ruling that no wrongful act was committed, she added that the former employer could not base its case on conjecture that the accused “could have and must have used the confidential information” just because he used to have such access.

Nature of information

It is fair to assume that taken collectively, a company’s database containing details of customers, suppliers and business inventory would be protectable confidential information.

But not every piece of information can be deemed a secret, especially if it has already been published online.

For instance, it is a common practice for some home owners to engage several real estate agents to market the same property. So no one agent can claim that the information on the property is secret because other agents also have access to it.

In this case, the former employee’s new company was accused of misusing business data because it had listings of foreign domestic workers that were also used by the former employer.

But the court noted that it is common practice in the industry for the suppliers of domestic workers to provide such details to multiple agencies.

Moreover, the employer could not point to any particular worker who was hired through the new company as a result of the misuse of business data.

The partners of the new company added that it was pointless to solicit business from customers of the former employer because making cold calls to ask if they wanted new domestic workers would only earn “rebukes” when they didn’t need to hire or change their existing ones.

Instead of using telemarketing, they pointed out that they promoted their new business by distributing flyers, organising lunches for the domestic workers on the weekends and posting on online platforms.

Poaching of employees

Good managers and supervisors always gain respect from employees and, if they leave to join new companies, it is common for some colleagues to also quit to join them.

Before employers start to cry foul when workers resign one after another, they should first ask themselves if they have been good bosses themselves or have done enough to retain the talent.

In this case, the company accused the former manager of poaching three employees to join his outfit in an “engineered move” that resulted in a severe disruption of its business.

But the manager countered that his former colleagues were the ones who called him to ask for jobs because they were unhappy at not getting pay increases, the inflexible working hours and being scolded with “vulgarities” during an argument with their employer.

The judge found there was no conspiracy to poach staff because there was no evidence that the manager had started his recruitment while he was still employed. Although he might have encouraged his colleagues to join him after he left, such actions were not unlawful.

And once the staff members had left, they no longer had any obligation to refer their old customers back to their former employer if these customers contacted them after they had joined a new company.

This case underscores an important lesson for all employers: Always appreciate your staff because companies can only flourish if they have talented and dedicated people to run it.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

MoneySmart fails to stop former exec from working for rival; court says non-compete clause ‘unreasonable’ New law academy course will train young lawyers differently: Forum