When your top employee joins the competition — taking your strategic business plan with them

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeLegal PostWorkWhen your top employee joins the competition — taking your strategic business plan with themEmployers often discover too late that the contracts meant to protect their business are inadequateWhen a key employee resigns, the company should know what information must be returned, what access must be terminated and what obligations continue. Photo by Sesame/Getty ImagesA technology company spends three years developing a product, millions of dollars acquiring new customers and countless hours refining its pricing strategy. Then its head of sales resigns to join a competitor. Within weeks, the competitor is approaching the same customers, pitching against the same product and offering prices suspiciously calibrated to the company’s business.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThis advertisement has not loaded yet, but your article continues below.Neither the former employee nor the competitor has necessarily done anything unlawful. Yet the company that invested years building its competitive advantage just lost much of it in a single resignation.FP Work touches on HR strategy, labour economics, office culture, technology and more.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Work will soon be in your inbox.We encountered an issue signing you up. Please try againThis is an employment-law problem businesses often recognize too late. Their most valuable employees become their most costly departures and the contracts intended to protect the business prove inadequate precisely when they matter most.Employers tend to consider employment agreements mainly when they hire someone. They should be thinking about them again before and at the time when that employee becomes indispensable.Most employees perform work that can be transferred to others with limited disruption. An exceptional employee, however, may possess strong customer relationships, technical knowledge, commercial judgment and an understanding of the business that took years to develop. The more valuable the employee becomes, the more costly their poorly managed departure.Yet many businesses use standard employment agreements that are not designed for the employees who are integral to their competitive position. And standardized agreements are less likely to be enforced by the courts.This advertisement has not loaded yet, but your article continues below.The obvious response is to impose a non-competition clause. But that may be the wrong decision.In Ontario, the Employment Standards Act, 2000, generally prohibits companies from entering into contracts containing non-competition clauses, subject to limited exceptions, including senior executive positions and agreements connected to the sale of a business.Other provinces have different legal frameworks. Courts have long scrutinized restraints on employees’ ability to earn a living. Employers who assume that a broad prohibition against joining a competitor will protect them may unhappily learn they provide no protection at all.The better strategy is to identify what actually needs protecting and use legal measures to safeguard it.Start with confidential information. A company may have invested heavily in customer data, pricing models, product development, business plans and proprietary processes. But labelling something confidential does not make it so. Employers need to identify genuinely sensitive information, restrict access appropriately and establish clear rules governing its use and disclosure.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.They must also distinguish between information belonging to the business and the general knowledge, experience and skills an employee acquires during their time at the company. An employee does not become the employer’s property by becoming good at their job.Customer relationships require similar attention. A business whose revenue depends on recurring relationships with major customers should not wait until a senior salesperson resigns to consider how those relationships are protected.Properly drafted non-solicitation and confidentiality provisions can be important, but their enforceability depends on their wording, scope and circumstances. A restriction that goes further than necessary will fail precisely when the employer needs it.And a company should have different non-competition (if enforceable) and non-solicitation clauses for different employees, to show that it put its mind to the protection it legitimately requires from each of them. Most Canadian employers do not do this, and it opens them up to considerable legal risk.Intellectual property presents another danger. Tech companies in particular may assume that anything created by an employee automatically belongs to the business. The legal position can depend on the employee’s duties, the circumstances in which the work was created, the applicable law and the terms of their contract. Ownership of software, inventions, product designs and other work product should be addressed expressly rather than left to assumption.This advertisement has not loaded yet, but your article continues below.Compensation arrangements deserve equal attention. Bonuses, stock options and other equity awards can encourage employees to build long-term value. But the terms governing vesting, departure and post-employment obligations must be considered carefully.An employer should understand what happens to outstanding awards when an employee leaves, including whether the plan’s language actually produces the result the employer intended. In one of my cases, Matthews v. Ocean Nutrition, the Supreme Court changed the landscape for what is enforceable.None of this means employers should treat their best employees with inordinate suspicion. That approach undermines the trust and autonomy that make exceptional employees productive. Nor can every commercial risk be eliminated through a contract. Employees must remain free to change jobs, compete fairly and use their general expertise.The objective is not to prevent mobility, but rather the improper use of information, relationships and intellectual property that the business has a legitimate right to protect.This advertisement has not loaded yet, but your article continues below.That requires more than a document signed on an employee’s first day. Employers should identify their most commercially sensitive positions, review who has access to critical information, establish sensible access and departure procedures, and ensure that contractual protections reflect the actual risks. When a key employee resigns, the company should know what information must be returned, what access must be terminated and what obligations continue.There is also a management lesson. If a company becomes dangerously dependent on a few employees, the weakness may be as much organizational as legal. Customer relationships should not reside exclusively in one person’s phone, and critical processes should not exist only in one person’s memory. Knowledge should be documented, responsibilities distributed and succession planning prioritized.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The best protection combines sound management, carefully drafted agreements and a workplace in which talented people have compelling reasons to stay.A company cannot own an employee’s future. But it can take sensible steps to protect the value it has created.The time to do that is when the employee joins, when their role changes and when that employee becomes indispensable. Waiting until their resignation is not a strategy. It is an expensive way to discover what the company failed to protect.Howard Levitt is senior partner of Levitt LLP, leading his teams of labour lawyers in Ontario, Alberta and British Columbia. Howard has appeared in more Supreme Court employment law cases and provincial appeals than any lawyer in Canadian history. A bestselling author, he discusses current workplace issues on the podcast, At Work with Howard Levitt.We apologize, but this video has failed to load.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.