I own an accounting firm that does bookkeeping services for small businesses. An employee who worked for me for more than 20 years resigned with four weeks’ notice. The employee said they were starting their own business and took at least 12 of my clients. The employee had no contract with our company. Can that person take away our clients to start their own business? What are my rights and options?
The first answer
Balraj K. Dosanjh, lawyer, Pink Larkin, Halifax
Even without an employment contract, the law imposes certain duties on employees during the course of an employment relationship. For example, employees owe a duty of good faith and fidelity to employers, which requires employees to act honestly and faithfully during the course of their employment. The duty of fidelity also includes an implied duty to not compete against the employer or to assist a competitor. However, employees are generally only bound by these duties while they remain employed.
The law also recognizes that employers can be quite vulnerable to certain “key” employees. The law, therefore, imposes additional duties on “fiduciary” employees; obligations that can survive termination of employment. For example, departing fiduciary employees are expected to refrain from soliciting the business of their former employer for a reasonable period of time after they leave their former job. Determining whether an employee is a “fiduciary” is very fact-specific and depends on the powers and responsibilities of the employee and their role within the organization.
Since the departing employee was not bound by an employment contract (or a non-solicitation agreement), what your rights and options are depends on who the employee was, the nature of their role within your organization, and when and how the departing employee obtained the business of your former clients. It is a good idea to contact an employment lawyer because you may be able to bring an action in court to recover your losses as one of your options.
The second answer
George Cottrelle, partner, Keel Cottrelle LLP, Toronto
You are understandably upset that your former employee took 12 of your firm’s clients to their new business. However, as you had no contract with the employee restricting them from soliciting your clients, your rights are based on common law principles.
The restrictions on activities of employees depend upon whether the activities occurred while the employee was still employed, or postemployment. Different considerations also apply when an employee is a “fiduciary,” such as a key employee in a senior role. In all cases, employees may not take your firm’s property, including client lists, and are prohibited from using any of your firm’s confidential information.
All employees have a duty of good faith, which precludes them from directing clients away from your business, while still in your employment. After their employment has ended, fiduciary employees are restricted for a reasonable period of time from certain competing activities such as soliciting your clients’ business. There is generally no such restriction on non-fiduciary employees.
You should send the employee a letter, reminding them of their legal obligations and that you intend to strictly enforce your rights. If there has been a material breach by the employee of any of their common-law duties, then you could institute proceedings for damages, and in limited circumstances may be successful in an injunction application.
You should require that new employees sign an employment contract, with restrictions not to use confidential information, or to contact your clients for a specified term period, after they leave your employment.
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