A recent employment case found that an employer whose employee had started a competing business during his employment period was entitled to compensation, even though the employer could not prove unlawful misappropriation of its confidential information or solicitation of its clients.
Case law has long held that an employee who starts a competing business or goes to work for a competitor of his or her employer does not breach his or her obligations towards the employer, unless such activities amount to a breach of a concrete additional obligation, the most commonly cited being non-disclosure of confidential information.
This case law is justified by the principles of:
- protecting an employee's freedom of occupation and his or her ability to make a living; and
- bridging the power gap between employees and employers.
As a result, employers whose employees start competing businesses or go to work for a competitor are generally reluctant to file claims, unless they can substantiate a breach of a concrete additional employee obligation.
Conversely, an employee's freedom of occupation has limitations which are not necessarily contingent on the misappropriation of his or her employer's confidential information. For example, under case law, a full-time employee is prohibited from undertaking additional employment elsewhere, unless specific authorisation is obtained from the employer. Even a part-time employee may be prohibited from working for a competitor, and full and part-time employees are prohibited from soliciting their employer's business during their employment.
In the case of an employee soliciting their employer's business, the employer can apply for injunctive relief. However, other legal remedies are available in less extreme circumstances.
In Employment Case 4354-12-13 A, Kramer David Ltd v Glitznikov (August 9 2016), the employee started a competing business during his employment and partially on the employer's time. Although the employer was unable to prove the misappropriation of confidential information and was not awarded damages in that regard, it was awarded damages for the breach of trust and bad faith exhibited by the employee. The court distinguished between steps which an employee is entitled to take before leaving his or her employment in order to find alternative employment and steps taken by the employee in the case at hand, who worked on his own new business during working hours.
In the court's words:
"In this case the employee did not stop at preparatory steps prior to leaving, but rather he took actual, not insignificant, steps in the business he opened. The employee acted in this way without notifying the Company and without telling the Company of the change in his "map of interests" and that he is no longer solely committed to his employment with the Company but also (and perhaps mainly) to his other activity. The employee's conduct ridiculed the Company and its owners, and exposed them to concern of industrial espionage, uncertainty and suspicion vis-à-vis its employees, clients and providers... In the proper course of an employment relationship, the employer should not be afraid of its employees and of their potential damaging its business, the way the Company was exposed in this case. The breach by the employee of the special relationship between employer and employee, entitles the employer to compensation."
This article was first published by the International Law Office.
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