The resignation or termination of employment does not always end the responsibilities of an employee to their past employer, even in the absence of a contract.
Certain employee who are “fiduciaries”, that is, holding a position of trust, will be held to honour employer confidences after their employment has ended. This usually means that such persons cannot induce or persuade their former colleagues to leave their employer, or misuse any confidential information which they have acquired by virtue of their position of trust.
This issue was reviewed in a recent Ontario decision. There was no issue in this case that the employee, Cosolo, was a fiduciary. He was employed as a Vice President of Supply Chain & Procurement. He resigned his employment to become CEO of a competing engineering company.
The issue in the case focused on certain employees who also resigned their employment to join the new company. There was no legal dispute that that Cosolo was not allowed by virtue of his status as a fiduciary to “poach” or induce past employees to leave their employment.
However, there is no impediment to any such employees from soliciting possible employment with Cosolo at their initiative. The case then centred on this evidentiary issue. The Court found that there was no inducement and hence dismissed the employer’s case.
The Court did review other common law obligations of a departing fiduciary. There is nothing wrong with working for a competing business. However, a fiduciary cannot solicit past customers for a “reasonable” period of time to allow his past employer to retain customer loyalty. Such a person may, however, accept such business, where there is no inducement.
All of this presumes that there is no contract in place which sets out post-termination obligations. A reasonable contract will set out such limitations, such as a prohibition on the solicitation of customers for a defined time period, and also may define the damage sum to be paid where this is violated. These terms may be enforceable where the post-termination restrictions are fair. Absent such a contract, the employer is left to the common law remedies as in this case. The evidence of inducement is often hard to prove.
Advance legal advice for planning a new competing business or joining a competitive business is critical. Careful strategy can lead to an avoidance of nasty lawsuits or assist in defending them. Often an indemnity agreement may be given by the new employer to shield the employee from such claims. A review of any existing contracts may be required to advise on whether they are valid.
Take Advice and Understand the Risks
Whether you be employer or employee, It is vital to understand all the risks you face in resignation issues and post-termination competitive issues. Both views must be guided by proper and advice. For advice on this issue from either side, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.
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