Starting a Competing Business — Think Twice

Written by on July 12, 2012 in Employment Law Blog
Osgoode Hall Court of Appeal

Summary of Case

In Service Corp. International (Canada) Ltd. (c.o.b. Graham Funeral Home Ltd.) v. Nunes-Pottinger Funeral Services & Crematorium Ltd. the Plaintiff, a funeral home servicing two small towns of approximately 5,000 residents, brought an action against the Defendants, a newly formed competing funeral company owned by two of the Plaintiff’s former employees, for theft and misuse of confidential information, improper solicitation of clients, and unfair competition through false and misleading statements. The two former employees of the Plaintiff, Mr. Nunes (the Plaintiff’s former manager) and Mr. Pottinger (the Plaintiff’s former funeral director), formed the Defendant company shortly after resigning and hired the Plaintiff’s part-time and casual employees. Prior to resigning, the Defendants copied approximately 208 of the Plaintiff’s client files. Once formed, the Defendant company began running advertisements indicating that the Defendant company would assist clients in transferring their pre-arranged funeral policies with the Plaintiff and that Mr. Nunes and Mr. Pottinger resigned from the Plaintiff due to concerns with the pricing of its services. Private remarks were also made that the Plaintiff was going out of business. As a result, more than 200 client contracts were transferred from the Plaintiff to the Defendant company. After reviewing the Defendants actions and the financial impact it had on the Plaintiff, the British Columbia Supreme Court awarded the Plaintiff $280,285.00 in damages, and a further $10,000.00 for punitive damages against Mr. Nunes.

Impact of Decision on Employees

Similar to the recent Ontario Court of Appeal decision in GasTOPS Ltd. v. Forsyth, the above decision demonstrates that employees who take deliberate steps to negatively impact on their former employer’s financial stability will likely be found financially responsible for the loss of business that their former employer experiences, as well as other related damages. As can be seen in the decision referred to above, the amount of damages that may be awarded for such conduct are quite substantial. Therefore, employees should be mindful of the possible financial impact that their actions may have, as well as the legal ramifications, especially if the employee is a fiduciary or restricted by either a non-competition or non-solicitation clause.

Impact of Decision on Employers

The above decision demonstrates the Court’s willingness to financially compensate an employer that experiences a loss of business due to the inappropriate actions of former employees who abruptly resign and setup a competing business using the employer’s confidential information. Nonetheless, to avoid the legal costs associated with commencing legal proceedings, employers should be proactive by establishing non-competition and non-solicitation agreements with their employees, which may also act as a tight deterrence in causing damages due to soliciting and competing.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues.

See also our blog: Over $19 Million Award Against Employees Upheld By Court of Appealand $19.6 million award against employees upheld and “Employer Entitled to 10 Months’ Notice: Court”  published in Canadian Employment Law Today and $20 million award upheld by appeal courtpublished in HR Reporter.

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