Imagine you are the CEO of a marketing company. One of your employees, Nav, recently resigned and started freelancing her marketing services. Throughout her ten years of employment, Nav developed a close relationship with many of your company’s clients. One day, your client Sam calls to inform you that his firm will no longer require your company’s services. You later learn that Sam took his business to Nav.
You are outraged, and rightfully so. Can Nav take Sam as her client?
This depends on whether Nav was a “key” employee.
Who qualifies as a “key” employee?
A key employee is someone the employer trusts to exercise discretion over the company’s matters. This means they are able to make big decisions that can significantly affect the company and the employer. As such, key employees are more likely to be members of senior management over lower level employees, but any employee can qualify if they perform a major role.
Key employees have special duties to their employer
Because key employees wield power and have access to the company’s most confidential information, they owe their employer more duties compared to the average employee. Their overarching duty? Be loyal and act in the best interests of the employer.
More specifically, key employees have duties NOT to:
- Misuse or reveal an employer’s confidential information or trade secrets during and after employment;
- Solicit the former employee’s customers or employees for a reasonable time period;
- Unfairly compete with the employer after the employment ends; and
- Take the employer’s property or business advantage.
What happens when a key employee breaches these duties?
Employers can sue their employees for what the courts call a “breach of fiduciary duty,” which may lead to compensation. Additionally, the court may grant an order to stop the employee from continuing their misconduct. In order to be successful at court, the employee must have evidence that 1) the employee was a key employee; and 2) their conduct was a breach of their duty.
In the scenario above, although Nav worked for your company for over 10 years and had close relationships with your clients, the court will not consider her a key employee unless she also was in a position to influence the company’s decisions. For instance, maybe Nav had the authorization to bring on clients, switch suppliers, or overhaul a strategy without your permission. Perhaps she had access to many of your company’s trade secrets and financial documents. The more power she had, the more likely the court will accept that she was a key employee.
The most frequent complaint involves former employees starting a competing business or joining a competing company. For example, maybe Nav had knowledge of the fees that the former employer paid Sam, and convinced him to join her new company at a discount, promising the same level of expertise and service. The court will assess all of the factors of each case, including the amount of knowledge the former employee has, the degree of the information’s confidentiality, the timing of the alleged breach of duty, and the employer’s lost opportunities. The bottom line is, the more evidence you can produce, the higher your chances of success at court.
What should an employer do to avoid going to court?
While suing an employee can provide relief, lawsuits are time consuming and expensive. Moreover, there is always a chance that you will lose. A carefully drafted employment agreement is the best way to protect yourself from these unfavourable scenarios. Ontario’s Employment Standards Act recently prohibited employers from using non-compete clauses; however, protection is still available from non-solicit and non-disclosure clauses. Moreover, the common law still protects employers from unlawful competition from their employees. If you are at all concerned with your former employee’s conduct, it may be best to speak with a lawyer to obtain independent legal advice.
 Lac Minerals Ltd. v International Corona Resources Ltd, 1989 CarswellOnt 126 (SCC) at paras 26 and 130.
 Imperial Sheet Metal Ltd. v Landry, 2007 NCBA 51 at paras 60-63.
 Canadian Aero Service Ltd v O’Malley, 1973 CarswellOnt (SCC) at paras 22-25.
 Mi5 Print & Digital Communications Inc. v. Larmer, 2017 ONSC 3112.
 Employment Standards Act, 2000, SO, c 41 at s. 67.2(1).