Employers have Legal Rights when an Employee Leaves to Compete

When an employee leaves to compete with an employer, employer’s have a number of legal rights and options.

The Problem: Employees Leave and then Compete with Their Former Employer

One problem many employers face is employees who leave the company and then compete with the employer.

Typically, a valuable employee will think to herself, “I could do this on my own and keep all the profit for myself.” The employee may take customer lists, company information, relationships, and other employees.

Without a Noncompete Agreement

One way to help avoid these problems is a noncompete agreement, but even when there is no noncompete agreement, employers have a number of legal rights.

Employer’s Rights

Employer’s rights are derived from the legal duties (called fiduciary duties) that employees owe to employers. Employees owe a number of fiduciary duties to employers during their employment including

The Fiduciary Duty of Loyalty

The fiduciary duty of loyalty requires an employee to act only in the employer’s best interest.

The Fiduciary Duty of Obedience

The fiduciary duty of obedience requires an employee to carry out all the employer’s lawful instructions.

The Fiduciary Duty of Disclosure

The fiduciary duty of dislcosure requires an employee to disclose to employer all material facts, knowledge, or information that might reasonably affect the employer or business.

The Fiduciary Duty of Confidentiality

The fiduciary duty of confidentiality requires an employee to keep the employer’s confidences unless required by law to disclose specific information.

The Fiduciary Duty of Reasonable Care

The fiduciary duty of reasonable care requires an employee to use reasonable care in performing duties as an employee.

The Fiduciary Duty of Accounting

The fiduciary duty of accounting requires an employee to account to the employer for all of the the money and property received as an employee/agent of the employer.

Employee’s Breach of Fiduciary Duties to Employer

Often, employees will prepare to leave the company and take property or make a copy of information that the employee wants to use to compete with the employer. This is generally illegal.

If an employee violates any of these duties before leaving employment, the employee is liable for the harm the employee caused to the employer.

For example, this means that employees owe a duty of loyalty to the employer and cannot use company accounts, client lists, or company information for their own personal benefit.

Trade Secret Violations

There are also trade secret considerations when employees leave employment. If the employee takes confidential company information to use or disclose to others, the employee has probably violated the Minnesota Trade Secrets Act.

Tortious Interference with Contract

Finally, employers should consider whether the employee is interfering with the employer’s contracts with customers, clients, suppliers, vendors, manufacturers, or other industry relationships. Interfering with a contract is illegal because it is causing another to breach a contract. Like unfair trade practices, tortious interference with contract is illegal, and employee can be liable for the harm caused to employers.

Benefits to Employers

Employers have a few options when they have been harmed as discussed here.

First, employers can seek a temporary restraining order and/or temporary injunction to stop the employee from further illegal acts.

Second, employers can seek financial compensation for financial losses such as lost profits, harm to the business, and legal fees required to sue the employee. The idea is that a court should put the employer back into the position before the employee caused the harm.

Protecting Employer’s Rights with a Business Attorney

For most employers, these are complex areas of the law. Employers should use a business attorney to

  1. help avoid problems caused by employees who leave the business to compete and
  2. deal with employees who have already left to compete.

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