The BC Supreme Court has awarded only minimal damages against two former employees for engaging in competition with their former employer.
The case began when two employees of Zoic, a digital effects company, decided to start their own visual effects company (“Leviathan”). Following their departure, Leviathan secured a special effects contract from a television production which was, at that point, Zoic’s most substantial client.
Following the employees’ departure, Zoic sued them and pursued a host of claims, the balance of which were rejected by the court following a three week trial.
Significantly, while the court accepted that the two employees had breached their duty of loyalty, fidelity and good faith to Zoic by actually competing with Zoic while they were still employed, the court awarded only minimal damages. The court found that the employees’ breaches did not cause the loss of the special effects contract and Zoic was awarded damages for loss of opportunity, reduced by 95% to reflect the fact that it was unlikely Zoic would have retained the contract.
This case serves as a stark reminder to employers to tread carefully when pursuing departing employees for damages. Even where employees breach their duty of loyalty, fidelity and good faith, there must be a compensable loss or the employer risks a nominal judgment from our courts.
The decision is also a reminder of the importance properly drafted restrictive covenants to prevent direct solicitation and competition after the end of any employment relationship.
If you would like to discuss any aspect of this case, please contact us.