Employer’s Confidential Documents Taken — But No Harm Means No Foul

Twelve years after Lou started working for a steel company, he became dissatisfied with his position as vice-president and his relationship with his boss.

Lou’s wife encouraged him to resign and start his own company selling steel. His wife incorporated a numbered company and registered a corporate name, after having spoken to a lawyer. Lou then resigned and launched a competing company on his own.

Within a week, Lou got a letter from his former employer saying it had evidence that, before he left, he had copied and downloaded confidential, proprietary information. The company asked him to return it.

Lou claimed he had simply backed up the files on USB drives, which was a usual practice in case there was a computer system failure. He gave the USB drives back to the employer.

Once Lou started his new, competing business, he also began to solicit his old employer’s customers. That got him sued.

The employer claimed in the courtroom that Lou had been a fiduciary of the company. That meant he was so powerful within the organization and so high up that he had an obligation not to solicit their customers to sell them a competitive product for a reasonable period of time.

In this day and age, titles don’t mean a lot. Although Lou was referred to as a vice-president of the company, it turned out he was really a glorified sales person with little independent decision-making capacity. He didn’t hire staff, set prices, sign cheques, set strategy or a variety of other responsibilities you would expect from somebody on the executive team.

The judge found Lou was not a fiduciary and was free to compete with his employer. In any case, Lou was not successful in taking any of his old clients with him and there was no evidence at trial the employer had suffered any loss at all.

Lou’s new company survived for a only year before going out of business.

The employer then alleged even if Lou was not a fiduciary, he breached his duties of good faith, loyalty and fidelity by competing. After all, Lou had set up a competing company before he had even left.

All Lou had done is set up a company. He had not started to call on customers or compete in any way. He began competing only after he resigned. He had not breached his duty of good faith, loyalty and fidelity by incorporating a company before he left.

The problem with Lou’s story about backing up his computer files on USB sticks, however, is that he had taken them home. Backing them up in the interest of the company is one thing; taking them home is another.

Lou’s next problem was he hadn’t disclosed he had made copies of the USB sticks before he returned them to the company. When Lou’s lawyer provided, as per the rules, all of the relevant documents Lou had in his possession, they included many of the documents from the USB sticks. The only way they could have been produced by the lawyer was that Lou kept copies.

But to succeed in this part of its claim, the employer had to prove Lou had used that confidential information in a way that caused the employer harm. There was no such evidence. They could not show that one single dime was lost because of Lou’s retention of those confidential documents.

Ultimately, Lou was found by the judge to have breached his duty of good faith, loyalty and fidelity by deleting, copying and keeping many confidential business documents. The employer, however, suffered no damages and was awarded nothing.

The employer was ordered to pay Lou $161,000 in costs and it paid another $20,000 when it lost the appeal. Lou was guilty of some real fouls in this case but at the end of the day there was no harm.

This article was originally published by The Hamilton Spectator.