Justice Emily Burke found what Anderson and Menzies did unacceptable, and hit them right where it hurts, the wallet. Photo: iStock.
Former employees – who started their own companies – beware!
The Supreme Court of British Columbia has just released a decision in which it found that a former employee poached a contractor, and the knowledge gained with his last employer, in order to start his own company.
In the case Imperial Parking Canada Corporation v. Anderson, Herbert Anderson, the then CEO of Imperial Parking cancelled some non-competition commitments for consultant Michael Menzies. A letter agreement was issued, of which Imperial wasn’t aware, in which Menzies’ non-competition clause was shortened by two years and his consulting agreement was cut by one year.
This occurred in 2010. Shortly thereafter, Anderson left the company with a $1.2 million severance, and he and Menzies – who left the company in 2011 - started their own company GoPark Management Inc.
Imperial took them to court because the company claimed that by cancelling some of the non-competition clauses for Menzies, Anderson committed breach of fiduciary duty, fraudulent misrepresentation and deceit.
A fiduciary duty is a relationship of trust between parties in which the parties pledge to act with honesty and good faith towards one another. Furthermore, as Anderson used to be the CEO of Impark, he had a duty to act in the best interests of the corporation.
Impark made all these accusations, because as a result of cancelling the clauses, Anderson and Menzies were able to start their own company three years earlier than otherwise would be allowed by the original agreement.
Justice Emily Burke found what Anderson and Menzies did unacceptable, and hit them right where it hurts, the wallet. Not only did Anderson have to pay back his $1.2 million severance payment to Impark, but Burke ordered Anderson, Menzies and their company to pay Impark all the profits the company had earned up to March 2014. Ouch!
Justice Burke also found that Menzies had intimate knowledge of the parking deals sold to Impark and therefore was a valuable consultant. Due to that intimate knowledge, the new company Anderson and Menzies created posed a “significant threat” in the market.
So what, as an ex-employee wanting to start your own company, can you do protect yourself from getting into legal trouble?
First of all, don’t do what Anderson and Menzies did. If you have signed an employment/consultant contract with your employer, you should act in good faith.
Secondly, you need to review the contract you signed with your former employer. Is there a non-competition clause?
See: Non-compete clauses - FAQ
A non-competition clause is a section in an employment contract that protects the employer. Basically it’s a promise not to take business away from your employer, by starting your own business in the same exact area or going to work for a close competitor, if you leave or are let go. It’s usually limited in time and geographic area.
There may also be other clauses in the contract that may limit your future employment, such as a non-solicitation clause.
If you are signing an employment contract that has clauses, you may want to get it reviewed by an employment lawyer before you sign it.