The plaintiff operated Graham Funeral Home ("GFH"),
the only funeral home in Oliver, BC. John Nunes was the Manager of
GFH and Daryn Pottinger was its funeral director. Nunes and
Pottinger were the only full-time employees of GFH. Over the course
of several months, Nunes and Pottinger tried to buy the business,
but their offers were not accepted. They then resigned and, a
couple of weeks later, started a competing business,
Nunes-Pottinger Funeral Service & Crematorium ("NP").
All of the part-time employees of GFH also resigned and joined the
For several months prior to leaving, one of the part-time
employees had made copies of GFH's files, which included
information about "pre-need" contracts i.e. funeral
expense insurance policies where GFH had been named as the
beneficiary. GFH had been named as a beneficiary of approximately
300 pre-need contracts, of which more than 200 were copied by the
employee. The files also contained client names, addresses, phone
numbers, dates of birth, and the insurance policy number. The
evidence showed that in the seven months between the opening of NP
and GFH demanding the return of its files, 208 of GFH's
pre-need clients had transferred the beneficiary of the pre-need
contract from GFH to NP. The evidence also showed that Nunes had
delayed finalizing at least three pre-need contracts before he left
GFH so that those clients could be referred to NP when NP commenced
GFH sued NP for, amongst other things, losses caused by the use
of confidential client files to solicit and obtain GFH's
"pre-need" business, using stolen property to compete
against GFH and directing business to NP while the defendants were
still employed at GFH.
The Court agreed that some of the clients who went to NP could
have obtained the policy number from their own copies or by
contacting the insurer. The Court also found that some of GFH's
clients may have moved their business to NP because Nunes had lived
in Oliver for most of his life and was very active in the business
community. However, the Court found that as a result of having
copied GFH's files, NP was able to fill out the transfer forms
and obtain client approvals, and that the mere possession of the
files, particularly the policy numbers, gave NP an advantage that
it would not have otherwise had.
The Court found that Nunes and Pottinger had clearly breached an
employee's duty to not use the confidential information of
their former employer when they copied file information in order to
secure the transfer of the pre-need contracts. The Court further
held that NP, the new employer, was also liable for GFH's
losses on the principle that a new employer who benefits from the
misuse of confidential information will be held liable for losses
suffered by the former employer, even if the new employer did not
have direct knowledge of the employee's breach.
For these losses, the Court awarded GFH $263,000. The Court also
awarded $10,000 in punitive damages against Nunes personally on the
basis of his conduct in stealing the files and other material while
still employed by GFH, working for NP's benefit while still
employed by GFH, and for refusing to admit to any wrongdoing until
it was obvious that GFH had evidence against him.
This case confirms the following principles:
While employees may set up a competing business (subject to any
enforceable restrictive covenants in individual employment
agreements), employees may not use confidential information of a
previous employer for this purpose.
Confidential information includes client names, addresses,
phone numbers and other information that is
"confidential" to the operation of the business; for
example, the policy numbers of the pre-need contracts in the
context of the funeral home business.
A new employer who benefits from the misuse of confidential
information is liable for losses suffered by a former employer,
even if the new employer did not have direct knowledge of the
The Court may award punitive damages against an employee whose
conduct is so outrageous that it merits the condemnation of the
court; for example, theft of confidential information and engaging
in conduct that would benefit a competing business while still
employed by the previous employer.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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