Scooping employer’s client costs engineer over $112K

Nick was an electrical engineer who had developed an expertise in a specific software system. One day, he was contacted by an old colleague who told him there was an opportunity where his friend worked. His friend’s employer was in the business of loaning out engineers to companies that needed specific engineering skill sets on a short-term or contractual basis. Nick was interested and decided to find out more. He knew if he accepted the job he would be assigned to work for a specific client of his new employer and go to their offices every day. He would be employed by his new employer, not the client to whom his services were being loaned.

The hiring documentation not only included a confidentiality clause in which he promised never to disclose or exploit confidential information he learned in the course of his employment. More importantly, it also had a term that said that during his employment and for 12 months after he would not do anything to interfere with his employer’s business relationship with any of its clients or solicit any client he had dealt with to try to get them to take their business elsewhere.

These provisions are routine with a lot of employers, but especially those who loan out their employees to someone else. They found the employee and established the relationship with the client and they don’t want the two of them getting together and cutting them out. Nick’s employer was charging the client $120 an hour for his time. Nick was receiving $90,000 a year for his time. That gave the employer an approximately $100,000-a-year profit. It was keeping half of what it was charging the client and the other half went to pay the costs for employing Nick. After about 10 months of work, Nick submitted his notice of resignation two weeks in advance of his last day. Not being very bright, Nick then sent another email from his work email account to the client with whom he had been working for 10 months. He asked the client if they would like to hire him through a different provider since he had resigned from his employer’s employment. He got a positive response. The client did not want to employ him directly but did not really care who they paid for his services. Nick obviously contacted one of his employer’s competitors and told them he had free money to bring them as he already had a client. Nick signed up with the new company and the day after he stopped working for his employer at the client’s offices, he returned to the same place but with a new employer.

When Nick got sued he tried to argue the non-solicitation clause was unenforceable as being too broad or unfair. He did not succeed. The judge decided the employer had a legitimate business interest to protect. Nick had not been asked to agree to stay away from all of its clients, just the ones he worked with. In this case, there was just the one. The employer did not want Nick to be able to scoop the relationship and the business. Nick never would have known the client if not for his employer. The judge found the clause was clear, unambiguous and not overly broad. It was enforceable and Nick was in trouble. The judge found Nick had violated both the non-solicitation agreement and the confidentiality covenant. Obviously Nick had exploited confidential information to take this client to one of the employer’s competitors. Ultimately Nick was ordered to pay his old employer more than $112,000 plus interest and costs.

The judge in Nick’s case recognized that employees who are loaned out to other employers are in a very unique position. They are completely integrated into the client’s business. They know the clients better than their employer does. They are the ones with the relationships. That leaves the employer extremely vulnerable to abuse by employees. They are smart to be very careful about having proper written agreements.

Non-solicitation agreements like the one Nick signed should not be confused with a non-competition agreement. In Ontario, non-competition agreements are very rarely enforceable. Those are the agreements that say for a certain period of time after you leave your employment you cannot work for a competitor. That is not what Nick was asked to sign. He was simply asked not to scoop their clients. He should have known better.

This article was originally published in The Hamilton Spectator, where Ed Canning is a freelance contributing columnist.