Court clarifies limits on ex-employee’s use of employer information

The case is also a reminder that the courts will award substantial damages against an employee that has breached his or her obligations only if the employer can show it has suffered financial loss as a result

An April 2017 BC Supreme Court judgment has updated the law governing how far a departing employee can go in effectively assisting a new employer who is a competitor, including through sharing the current employer’s confidential information and diverting a “corporate opportunity.” Unfortunately for the plaintiff, the Sateri Holdings vs. Vinall and Fortress Specialty Cellulose case is also a reminder that the courts will award substantial damages against an employee that has breached his or her obligations only if the employer can show it has suffered financial loss as a result.

The defendant Vinall was a senior executive within the Sateri International pulp and paper group. He was involved in reviewing pulp and paper plants around the world as potential acquisition targets for Sateri, although hewas not the final decision-maker. As a result of insolvency, the Thurso mill in Quebec was up for sale. Vinall assisted in reviewing it as a potential acquisition for Sateri. Ultimately, senior management of Sateri decided to pass on Thurso due to, among other considerations, the perceived disadvantages of its location and related regulatory environment in Quebec.

When Vinall became unhappy with his career at Sateri, where he was living as an expatriate in Indonesia, he started a lengthy period of pre-hire discussions with the co-defendant Fortress. In those conversations, Vinall provided Fortress with a considerable amount of information about the Thurso mill that he had collected through his work for Sateri. He was found to have done so with the purpose of both impressing the president of Fortress and creating a reason for the president to hire him, a strategy that was successful.

Just before Vinall joined Fortress, it acquired the Thurso mill. But then Sateri discovered evidence of Vinall’s email communications with Fortress while he was still employed at Sateri sending various Sateri documents relating to the Thurso mill. Sateri then sued Vinall, alleging he had breached:

• his basic duty of loyalty as an employee by assisting a competitor while still employed at Sateri;

• his duty of confidentiality as a Sateri employee; and

• because he was a “senior executive,” his fiduciary duty not to “divert a corporate opportunity” of Sateri, the Thurso mill, to a competitor.

The last allegation allowed Sateri to demand that Fortress, which it accused of being a willing participant in all of the above, disgorge its profits from the Thurso mill.

On the first claim, the trial judge carefully reviewed the case law, observing that the line between the permissible preparations a departing employee can undertake for a new job or competing business and violation of the duty of loyalty to his current employer was not clear-cut. He ultimately concluded that Vinall had crossed the line by virtue of the extent of his advice and assistance to Fortress, a Sateri competitor, and the sharing of Sateri confidential information.

As for breach of confidentiality, while many of the documents Vinall sent Fortress were available from the seller to any potential Thurso mill buyer, and thus were not confidential, the judge did find some reports and analyses of the mill prepared by Sateri were confidential and should not have been shared with Fortress.

However, the trial judge concluded that Sateri had suffered no damages from these breaches because:

• Sateri had decided, independently of Vinall’s views or Fortress, not to try to buy the Thurso mill; and

• the confidential Sateri documents were of limited value and utility in Fortress’ decision to buy Thurso.

Fortress was also excused from any liability because it had immediately deleted copies of the Sateri confidential documents once it learned what they were.

On the fiduciary duty claim, the court summarized the case law on what qualified an executive as a fiduciary and concluded that Vinall did not have sufficient autonomous decision-making power to qualify.

Furthermore, the judge ruled that a “business opportunity” such as the opportunity to buy the Thurso mill, which was widely publicized and open to acquisition to any qualified bidder through the insolvency proceedings, was not the type of proprietary “corporate opportunity” that a fiduciary must not “divert.”

He contrasted the public sale of Thurso with a non-public new contract or other business opportunity that a departing employee has helped find and develop to the point of sale and is in a unique position to divert to his new employer. Only in the latter situation would a fiduciary duty not to divert the opportunity apply.

Lessons from this decision include:

• robust control of use of and access to key confidential information, including forwarding by email, and access to key confidential information can prevent the kind of breach of confidentiality that occurred in this case;

• not every business opportunity is a true “corporate opportunity” that fiduciaries must not usurp after leaving; and

• before launching a lawsuit against a departed employee, make sure you can prove substantial damages flowing from the wrongful conduct.

Geoffrey Howard is a partner with Vancouver labour and employment law firm Roper Greyell LLP. This article is intended to convey general information only and should not be considered as legal advice.