Articles | Employees beware

Employees leaving to set up a rival business take note!

 

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Julia Mactear

Julia Mactear

A court has recently held that employees may not have acted in breach of their implied duty of confidentiality if they leave to set up a rival business and rely on information they have acquired during their employment. However, they may have acted in breach of restrictive covenants or an express duty of confidentiality had they had such obligations imposed on them in their employment contracts/Staff Handbook.

Employees will need to establish that the information acquired, such as customer lists, was in the public domain or part of the knowledge gathered during the course of their employment. Also, the Court held that in such circumstances the employees may have acted in breach of their duty of good faith and fidelity and in the case of senior employees in breach of their fiduciary duties.

The Court indicated that in such situations it may be appropriate to award damages based on what would be a reasonable price for the ex-employees to pay for using their former employer's documents as a shortcut to setting up their business in direct competition.