Newfoundland and Labrador court finds operations manager who quit didn't have high-level access or authority that would limit his ability to contact old customers or join competitor
The Supreme Court of Newfoundland and Labrador recently released a decision regarding an employee’s post-employment obligations in relation to confidentiality and non-competition with respect to their former employer.
Patrick Murphy was employed as Operations Manager with Safety First Contracting (1995) Ltd. (Safety First or the company), a company involved in the management of traffic diversion and safety during road redesign and construction activity. The company had a virtual monopoly in the traffic control business in the St. John’s area between 2011 and 2016.
Murphy resigned from his employment with Safety First on May 9, 2016, after approximately 14 months of service and three weeks later went to work for a competitor, Hi-Vis Traffic Control Inc. (Hi-Vis), in a management position. Hi-Vis started operating on June 1, 2016, which marked the end of the company’s near monopoly. As a result, Safety First alleged that Murphy breached his confidentiality and non-competition agreement with the company, was in breach of confidence, and committed wrongful conversion of trade secrets. Alternatively, Safety First claimed that Murphy violated his common law obligations of confidentiality and non-competition. Safety First also sought damages against Hi-Vis, alleging that it was vicariously liable as the beneficiary of Murphy’s unlawful actions. Murphy denied the existence of a confidentiality and non-competition agreement and that he copied or shared any of Safety First’s trade secrets.
Analysis and decision
At trial, the company’s claim against Murphy was dismissed in its entirety. With respect to the existence of a confidentiality and non-competition agreement, Justice Goodridge considered conflicting witness testimony and found that while the company may have intended Murphy to sign a confidentiality and non-compete agreement prior to the start of his employment, the agreement was never signed and returned to the company. Despite the company’s suggestion to the contrary, Justice Goodridge also found that there was no motive for Murphy to steal or destroy this agreement. The accepted evidence was that Murphy resigned his employment with Safety First to start a small engine repair business. It was only after his resignation that he was approached by the owner of Hi-Vis to come work for them.
The common law confidentiality and non-compete obligations for an employee post-employment differ depending on whether an employee is a fiduciary or a non-fiduciary employee. Fiduciary employees are key, senior management employees and have more onerous restrictions post-employment which require them to refrain from actively soliciting customers of their previous employer. Non-fiduciary employees’ obligations are much less rigorous; these employees are entitled to use, with their new employer, the general skills and knowledge acquired as a result of the previous employment relationship. Both fiduciary and non-fiduciary employees however, have obligations not to retain confidential documentation for the use and benefit of a new employer and not to disclose confidential information.
Justice Goodridge discussed that courts are cautious in classifying an employee as a fiduciary without the clearest of evidence, due to the more onerous legal restrictions imposed post-employment; the law favours allowing an individual the freedom to pursue economic advantages through mobility in employment. He held that Murphy’s position was more administrative in nature compared to a senior management role. Murphy did not have significant decision making authority, had limited access to corporate information and did not handle funds. In other words, he was not a key employee for Safety First. In concluding that Murphy was a non-fiduciary employee, Justice Goodridge reiterated that there were still post-employment obligations imposed upon him not to copy and remove confidential information for the benefit of his new employer. On the facts of the case however, Safety First failed to prove that Murphy breached any such obligation of confidentiality. Safety First also failed to prove that Murphy copied trade secrets, e.g. practice manuals, customer lists, pay scales, etc. to use at Hi-Vis.
While Murphy denied that he copied an employee list from Safety First, he admitted that he contacted several employees to come to a recruitment meeting after commencing his new role with Hi-Vis. He had some employee contact information in his phone from his time working at Safety First. Justice Goodridge held that there is nothing inherently wrong in a former employee approaching his/her former co-workers to try and entice them to accept employment with a competitor, so long as there was no reliance placed upon the former employer’s documentation to obtain the contact information. Of note however, this finding was made with respect to Murphy being a non-fiduciary employee and does not consider the issue of inducing breach of contract. Finally, since Justice Goodridge dismissed the company’s claim that Murphy wrongfully converted trade secrets, he had no need to address the issue of Hi-Vis’s vicarious liability.
Takeaways for employers
This case illustrates the importance of ensuring employees sign and return employment contracts prior to starting work with a new employer and for employers to safeguard such records. It also provides a reminder that, regardless of whether there is a written contract of employment which sets out an employee’s responsibilities in relation to non-competition and confidentiality, after the employment relationship ends, an employee is not permitted to take away confidential information for the use and benefit of a new employer. Finally, although not discussed in the decision, it is important for new employers to be aware that should a key employee (i.e. a fiduciary) be hired from a competing business, the new employer may be found liable for damages if the new employee breaches his/her continuing obligations with the former employer and provides confidential information to the new employer, for its benefit.
For more information see:
- Safety First Contracting (1995) Ltd. v. Murphy, 2019 NLSC 47 (N.L. S.C.).
Ashley Savinov is an associate with Cox & Palmer in St. John's, practicing management-side employment and labour law. She can be reached at (709) 570-5588 or firstname.lastname@example.org.