Colo Court of Appeals affirms judgment against former employees
Employees sometimes are lulled into a false sense of security when they haven't been asked to sign a non-compete (or after they conclude that their non-compete is not enforceable). These employees think that they can do almost anything in anticipation of competing with their employer after they quit their jobs. That's not true and a March 5, 2009 Colorado Court of Appeals decision in Harris Group, Inc. v. Robinson demonstrates how an employee's pre-termination conduct can result in liability.
The facts in Harris Group are worth considering because they provide a lesson on what an employee should not do when preparing to compete with his employer.
Prior to quitting their jobs, the employees began to make plans to form a new business to compete with their employer. They copied company files and emailed or saved files for use with their new company. The original files were deleted after they were copied. The employees developed a website stating that one of the employees had left the company and taken along the company's entire consulting team. Five employees then quit and gave their employer one day notice. Once they quit, the five employees offered jobs in a new company to five of the seven employees who remained in their department. During the new company's first week, the former employees contacted the company's clients and and told them that the new company could take over their projects. As a result of the employees' promotional efforts, the new company was able to transfer seventeen of the twenty-none active projects from the old employer to the new company.
Prior to the jury verdict, the company's claims for computer fraud and abuse, for defamation, and for civil theft and misappropriation were dismissed. At trial, the former employer sought to recover damages and lost profits.
A Denver District Court jury found that the company had proved its claims against the new business for intentional interference with contract, conversion and unjust enrichment. The jury also found that the company had proved its claims against the former employees for breach of confidentiality agreements, breach of fiduciary duty, intentional interference with contract, conversion; and unjust enrichment. Actual damages of over $1.9 million were awarded against the former employees and the new company. The jury also awarded punitive damages of over $600,000.
The Court of Appeals' opinion does not include any surprises. The Court held that the case should be remanded because pre-judgment interest had been improperly calculated and held that damages should not have been awarded for unjust enrichment. The remaining challenges were rejected.
There are a number of lessons to be drawn from Harris Group. Employees face many economic challenges when they leave a company to form a competing business. Nonetheless, employees should not engage in conduct prior to terminating their employment that will expose them to liability to their former employer. Employers can and will use computer forensics to determine what an employee did before his employment was terminated. An employee should assume that his former employer will be able to determine what the employee did to prepare to engage in competition. Any effort to copy or email computer files will be discovered and may form the basis for claims against the employee.
