Why an ex-employee had to pay over $600k for dealing with a competitor

Dealing with a competitor came at a high price for a senior executive who was ordered to pay over $600,000 for acting against the interest of his firm while he was still employed.

Of course, the executive, the country manager of a technology company, was entitled to compete after he signed on with the other firm, but his actions in disclosing confidential information to that firm before he actually resigned put his actions in a whole different light.

About seven months before he left, the manager sent his prospective new employer a “business plan proposal” detailing customer transactions and a list of the sales achievements of key employees plus their salaries so that the competitor could tailor recruitment offers to these high performers.

These acts were especially hurtful to his old company, which had no idea of his behaviour and even kept him on the team by engaging him as a consultant after he resigned so that he could continue to provide advice and assistance to the company. But the relationship soon soured when his former employer discovered that he was working with a competitor.

In the course of the dispute, the former employer discovered that the manager had even acted against the firm’s interest some three years earlier when he got his colleagues to promote his side hustle of selling fruit juice during a team-building exercise.

He had claimed the exercise during the five-day workshop would foster team work, but he directed the participants to do tasks unrelated to their jobs, such as preparing marketing materials for the juice business and selling drinks.

Senior High Court Judge Chan Seng Onn found that “the team-building exercise was a farce concocted” by the manager to divert the creativity and labour of the course participants to benefit his side business.

The manager argued that the course was beneficial as it taught employees to think “out of the box”, but did not explain why he failed to tell the participants that he owned the juice business.

Taking these staff members for a ride proved costly when the judge ordered the manager to pay for their salaries for the duration of the “team-building exercise”, which came to about $38,000.

He was also ordered to pay over $300,000 for disclosing company secrets in his “business proposal” to the rival firm, an act that led to losses in business and valuable staff being poached. He was also asked to refund about $90,000 in “unauthorised” sales commission and claim payments to two of his employees as these were not done according to the rules while he was their boss.

The court also ordered him and his new employer to pay a further $430,000 for their part in causing his former employer to lose business and employees.

The manager had to bear half of this sum and this meant that he had to pay over $660,000 to his former company.

Here are two important rules of engagement all employees should know if they plan to quit and join another company.

Duty not to betray trust

It goes without saying that companies should do more to make talented employees stay loyal instead of coming up with ways to prevent them from joining competitors.

After all, the law generally frowns on “restraint of trade” clauses in employment contracts, which are often struck down for being unreasonable. Employees are entitled to use their experience or any skills they acquire, as long as they do not commit the surreptitious act of taking their former employer’s data illegally.

While many people usually look for new jobs while still being employed, they should do so professionally without undermining the interest of their employers.

Most employment contracts have clauses that require all employees to protect sensitive information and not get caught in positions of conflict that would hurt the interest of their employers, such as disclosing business data to competitors.

So sending your resume containing your general work history and experience is fine but bolstering this with sensitive business data to impress your prospective employer could land you in trouble.

In this case, the manager sent a detailed plan that contained various figures and projections relating to a new proposed business to his new employer. He claimed that this was just a “story” or an extended resume that he wrote to impress his new boss.

But Justice Chan found that this was no “mere pie-in-the-sky proposal” but one that contained historical sales figures involving clients of the manager’s then company.

“If he was merely spinning a tale from thin air, the details given in the proposal would have been unnecessary, and indeed counterproductive. Anyone can paint a picture of a financially viable business plan by conjuring a fictitious successful team and positive figures,” he said.

So the only way for the proposal to be meaningful was for the details to be backed up by reality. As the evidence showed, the plan disclosed the actual company’s client base, incomes and expenditures.

Information on all of these items falls comfortably within the restrictions of the employee’s confidentiality obligation, which prohibits him from revealing “any information concerning the products, organisation, business, finances, transactions or affairs of the company”, Justice Chan found.

Duty not to poach

If you are planning to resign, it is fine to tell your colleagues to stay in touch or even to look for you should they need a job. After all, this is what networking is all about, and many people tend to maintain close relationships with former colleagues.

Even if they eventually quit and join you after your departure, your former employer cannot cry foul if they are unable to keep other employees from leaving.

But it is a different story if you start to conspire and cajole your colleagues into also joining the competitor while you are still employed, because this puts you in conflict with the duty of good faith to your company.

This is especially pertinent for senior executives who know their subordinates’ salaries because such details would enable competitors to concoct attractive offers to poach these staff members.

The manager in this case did the groundwork for the competitor by disclosing the pay scale and work achievements of certain top performers so that they could be more easily enticed to jump ship.

Indeed, the manager even hoped this would be successful by urging the competitor to “please help to make an offer” to those key employees.

When such poaching is exposed, companies usually go after the instigators and even the new employers, because the sudden departure of key staff members could result in the loss of business.

“Conceiving the (employer’s) business as an integrated whole, with multiple interlocking cogs in a larger well-oiled machine, the loss of a cog is likely to impede its proper functioning,” Justice Chan added.

In addition, the employer also had to incur extra costs to recruit new people to fill the vacancies.

The judge found that the employer acted reasonably in hiring headhunters to find replacements at short notice to fill the vacancies and that the costs for such a measure were claimable. In all, the employer was awarded about $270,000 for losses related to the staff poaching alone.

Even if you are unhappy at work and have a plan to move on, this case should be a reminder that you should never act unprofessionally while still employed. If your immediate bosses have caused you grief, a better recourse would be to give your side of the story to the human resources manager in exit interviews.

Remember that talented staff will always be sought after by enlightened bosses, who might just be waiting for you. After all, if you are destined for greater things, you must leave your existing job first, right?

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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