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Substantial Unfair Competition Award Upheld by Ontario Court Of Appeal
March 8, 2012

The Ontario Court of Appeal recently dismissed the appeal of a group of defendants and their company who were found liable to their former employer for breach of fiduciary duty, breach of confidence and breach of their contracts of employment, due to the manner in which they left their employment, and their actions afterwards. The trial judge awarded damages against all the defendants equivalent to the profits earned by the new company in its first ten years of operation in excess of $12 million dollars, plus pre-judgment interest of $3 million dollars and costs of over $4 million dollars.

The individual defendants were senior employees of the plaintiff. They all resigned from their employment at same time giving two weeks’ notice. They then set up MxI, a new company, to pursue the business opportunities of their former employer, GasTOPS. According to expert evidence before the Court, the lost and forgone profit to GasTOPS was valued at approximately 13 million dollars over the ten-year period used by the trial judge. The Court found the notice of resignation was inadequate. Further, the defendants had competed unfairly by misappropriating and using confidential information comprising confidential business plans, information about particular customer needs, and confidential technical information. The trial took 295 days and over 7 years to conclude.

This case confirms the importance courts place on the obligations of senior employees to their employer and their responsibility not to use confidential information to compete unfairly with a former employer. While these defendants could have provided reasonable notice of resignation (likely in range of range of 10 to 12 months, according to the trial judge) to pursue other opportunities, their unlawful use of confidential information resulted in the Court upholding a 10 year period for disgorgement of profits. In order to avoid this type of extensive litigation, we recommend organizations review and ensure that key employees are covered by employment agreements containing well drafted restrictive covenants and prohibitions against use of confidential information.

GasTOPS Ltd. v. Forsyth, 2012 ONCA 134