Corporate Mole Bound by Preliminary Injunction
December 06, 2018
We’ve seen it over and over. Employees, including top sales people, leave their job and start a competing company in the same city. But they want to take “their” clients with them. In a recent Pennsylvania case, the departing employees left a confederate inside the old employer. The inside man told the old company’s customers (including the largest local client) about the new company, and he offered to (and did!) assist them in transferring their business. He emailed an external account the secret information needed to generate a quote for business, and the new company just changed the letterhead and used the same form. The Pennsylvania courts were not amused.
Most of the departed employees had covenants not to compete. It is no surprise that the courts restricted those former employees from breaching their agreements. But the mole had no such agreement. What stopped him from converting as much business as possible and then, when fired, going to work for the competitor? The time-honored duty of loyalty: every agent owes a duty of loyalty to the principal, and must act in good faith to further and advance the principal’s interests. The court found the mole had access to confidential information, and, if not stopped, would have continued to send and use similar information. Based on these facts, the court enjoined all the employees, including the mole, from any further use of the employer’s confidential information, from engaging in a competing business, and from soliciting the employer’s customers and other employees. The appellate court affirmed. Amquip Crane Rental, LLC et al. v. Crane & Rig Servs., LLC et al., 2018 PA Super 315 (Nov. 27, 2018).
If you have confidential information, plan to protect it. Treat trade secrets especially carefully. Get confidentiality agreements from everyone who accesses the information. Where appropriate, protect trade secrets with covenants not to compete. But, don’t forget traditional tort law – like the duty of loyalty. Make your agreements compatible with defending the duty of loyalty. And, when you are faced with a possible breach, a prompt investigation is crucial. Track those emails employees send to themselves – a smoking gun can make all the difference when searching for a corporate mole.