We all know that, where applicable, it is important to take care
in drafting confidentiality, non-competition and non-solicitation
terms in employment, contractor and other agreements. A recent case
in British Columbia, Cruise Connection Canada v.
Cancellieri (PDF), reminds us of the value of having a
"duty of good faith" clause. It also illustrates how
damages for the future use of confidential information will be
In Cruise Connection, a number of sales representatives left
Cruise Connection and started their own business. Before they left,
the sales representatives copied the company's customer data
base. The data base contained information on customers' names,
contact information, past trips, preferences and other valuable
information. The sales representatives set up their own business
and actively attempted (often successfully) to transfer sales from
Cruise Connection to their new venture, and to generate new sales
from Cruise Connection's customers.
The sales representatives' contracts with Cruise Connection
had two provisions of note: the obligation to operate honestly and
in good faith and in a manner which would not harm the goodwill and
reputation of Cruise Connection and the obligation to hold
confidential information in strict confidence. The contracts did
not have non-competition or non-solicitation clauses.
The Court's Findings
The BC Court found that the sales representatives had breached
both the confidentiality and good faith provisions of their
contracts. The Court confirmed that the duty of good faith is
breached when a person acts out of self interest, ill will or for a
dishonest purpose, or acts in a way that causes "significant
harm to the other [party] contrary to the original purposes or
expectations of the parties". Further, even where a departing
employee is not bound by a non-solicitation clause, he or she will
breach a contractual duty of good faith to the employer by taking a
list of the employers' customers for use after their employment
This is not new law, but it is a reminder of the benefit of
having a clear "duty of good faith" clause in appropriate
Cruise Connection also provides a helpful review of the
assessment of damages flowing from departing employees' use of
Cruise Connection advanced a claim for over $1.5 million for
future losses. The Court found that claim was not supportable and
awarded about $470,000 for future loss. The difference was in the
Baseline: The evidence showed that an average of 4.5% of Cruise
Connection's customers booked trips in any given year. The
Court accepted that as a starting point for the future loss
Retention Rate: Cruise Connection argued that 100% of those
clients would have stayed with Cruise Connection. The Court
disagreed. The sales representatives could have lawfully and
probably successfully pursued some of those sales. A 60% retention
rate was appropriate.
Attrition Rate: As there tended to be a personal relationship
between a sales representative and his or her clients, it was
likely that Cruise Connection would have lost some of its clients
to the sales representatives over time, even without them using
confidential information. Cruise Connection argued for a 15%
attrition rate. The Court said a 25% attrition rate was
Duration of the loss: Cruise Connection argued that losses
would continue for over seven years. The Court said that three
years was more appropriate – based on customer loyalty,
mobility of sales agents in the industry and the effect of
What this All Means
Takeaways for employers and counsel? Consider having a clear and
strong "duty of good faith" in your employment contracts.
This can limit solicitation even if there is no non-solicitation
provision. And carefully consider the types of evidence that will
be required to support assumptions in a claim for future
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