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Departing employees gone rogue

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Sophisticated information technology systems are rapidly taking over the modern workplace.  With the advent of remote access, cloud-based storage, ghost imaging, and everything in between, employers are increasingly adapting to evolving technological trends to remain competitive in their respective industries.

However, the ease with which information can now be accessed and duplicated has presented a whole new set of problems for employers, one of which is having to deal with departing employees gone “rogue”. These employees misappropriate important confidential/proprietary information immediately prior to their (planned or unplanned) departure from the business, with the intention of using it for the benefit of themselves or others.

The business consequences of departing employees gone rogue were recently highlighted in Prim8 Group Inc. v Tisi, 2016 ONSC 5662. In that case, an officer and director of Prim8 Group Inc. (Tisi) resigned from his employment to set up a competing business. Two days before his resignation, Tisi removed electronic equipment from Prim8’s premises, some of which contained proprietary information, and refused to return it. Shortly thereafter, another employee (MacArthur) resigned from Prim8 without notice to join Tisi’s competing business.

Tisi and MacArthur subsequently restricted Prim8’s access to the misappropriated information, failed to disclose relevant passwords and access codes, ignored Prim8’s attempts to reach them, and thereby interfered with Prim8’s ability to service its clients for an extended period of time.

Prim8 brought an action against the employees claiming damages and other relief arising from their departure, as well as the surrounding circumstances of their conduct.

The Court held that Tisi breached his fiduciary duty as an officer and director of Prim8, as well as his general duty of good faith and fidelity. In particular, the Court found that Tisi converted for his own use the equipment and information he removed from Prim8’s premises, and subsequently restricted access to that information without justification. The Court similarly held that MacArthur breached his general duty of good faith and fidelity to Prim8 by resigning from his employment without reasonable notice, and by failing to provide Prim8 with the information he had in his possession.

The Court also found Tisi liable for: (i) conversion (as a result of his wrongful interference with the assets of Prim8); (ii) inducing breach of contract (by encouraging MacArthur to resign from Prim8 without reasonable notice); and (iii) unlawful conduct conspiracy (by concocting MacArthur’s unlawful resignation strategy).

The Court awarded Prim8 damages in the amount of $91,000, and costs in the amount of $80,000.

Although this case appears to have had somewhat of a “happy” ending, Prim8 was awarded less than half of the damages claimed (largely based on the difficulty in quantifying the true damages sustained). That being said, Prim8 was fortunate enough to have bounced back from the conduct of Tisi and MacArthur – not all employers are so lucky. There are many cases highlighting the crippling business consequences of departing employees gone rogue, particularly when those employees were also “key persons” in the business.

To minimize the potential fallout associated with departing employees, employers are encouraged to consider the following take-aways:

  1. Establish written expectations relating to employee departures: Employers are encouraged to draft policies and incorporate specific terms into employment agreements about the obligations of departing employees, including obligations of confidentiality, return of property (e.g. office keys, hardware, passwords, etc.) and non-solicitation of employees/customers (if appropriate).
  2. Have an exit strategy: When faced with the prospect of a departing employee (whether that departure is caused by a termination or a resignation), employers must devise a strategy to minimize the potential fallout. That strategy should include a consideration of: (i) the employee’s role in the business; (ii) the information/systems they had access to; and (iii) whether that access has been permanently severed.
  3. Examine company computers, cell phones and e-mail accounts: Forensic examinations of these systems can often disclose valuable evidence of a departing employee’s improper conduct (e.g. communications with customers, retention of confidential information etc.).  Employers should make a habit of conducting such examinations when employees leave in dubious circumstances, and working with their IT providers to secure data and prevent data theft or sabotage. As a best practice, employers should also ensure that they have policies in place confirming that they have a right to monitor and examine the use of the company’s electronic equipment.
  4. Document everything: Lawsuits involving employees gone rogue frequently fall by the wayside due to insufficient/unpersuasive evidence. Prior to engaging in a protracted and expensive lawsuit, employers must gather evidence proving both the unlawful conduct and the harm that has been caused to the business.
  5. Act with urgency: Employers must act swiftly when a discovery is made that a departed employee has retained confidential information or company property.  An employer who fails to act urgently may be inadvertently waiving its legal rights – for example, courts will rarely grant interlocutory injunctive relief if the conduct is overlooked for an extended period of time.

Titus Totan

About the Author: Toronto employment lawyer Titus Totan supports both employee and employer clients in all areas of employment law, including employment standards, contractual and implied obligations, terminations, workplace investigations and workplace human rights.