Employee has 'sold' company information

[HandH]

Hi,

It has come to my attention that a former employee of my (limited) company has leaked confidential information to a competitor. The competitor has used this information to take some of my customers and spread false information about my company.

This has been confirmed by a customer that I lost to the competitor but managed to get back. I want to pursue the matter through the courts but due to loss of business as a result of these action I cannot afford the legal fees and the company is now on the brink of insolvency.

If the company is made insolvent and a receiver is appointed, does this mean the employee and competitor has got away with it? Is there any action I can take?

Also will the receiver have any power to take them to court if I can provide proof that their actions have caused the insolvency of the company?

Any advice appreciated.

Many thanks

 

[akirk]

Information about competitors may or may not be confidential / may or may not be available from other sources... What type of information are we talking about?

What was your contract with your former employee?

Why has the business come to this point - it is rare for loss of customers to be the only reason...

Alasdair

 

[HandH]

Information about competitors may or may not be confidential / may or may not be available from other sources... What type of information are we talking about?

What was your contract with your former employee?

Why has the business come to this point - it is rare for loss of customers to be the only reason...

Alasdair

The employee gave customer invoices, customer contact details and supplier information to the competitor. The only other way in which the competitor would have obtained the information is from the customers themselves as certain customers have different prices (I know this didn't happen). Also my website does not give prices.

In the employee's contract it stated that the employee could not share company info with anybody and that after leaving the company, the employee could not work for or advise another company in the same industry for a period of 24months.

The business has come to this point because about 60% of sales revenue has been lost due to this in the last 6months and there have been heavy price reductions to ensure no further accounts are lost.

 

[akirk]

A clause like that in his contract may not be enforceable as you can not prohibit someone from doing their line of work as they need to earn money and live - I would guess, (without knowing the details) that he could have that clause over-turned easily...

You may or may not be able to do something with the first point - but I guess that a) you will not be able to afford it and b) it is no guarantee of success

on the third, while I can see that this can have a hit on revenue, this needs unpacking more...
- it is the role of the directors to grow the business
- did all customers go at once that you were caught unawares?
- what were your plans you had in place to deal with customers leaving
- what was your risk analysis?
- if you had to reduce your price heavily to compete - were you originally overpriced, and therefore your business model was actually not sustainable?
- etc.

ultimately - it is the job of the directors to deal with issues like this - it is difficult to ascribe all blame elsewhere...

Alasdair

 

[VeryMark]

I would suggest you find a solicitor prepared to undertake matters on a no-win no-fee basis.

....... a non-compete clause in an employee's contract will be enforceable to the extent strictly necessary to protect your business.

 

[iksol]

...and that after leaving the company, the employee could not work for or advise another company in the same industry for a period of 24months.

UK employment law forbids any practice that imposes a restriction of trade; in short it's illegal to stop an individual plying their trade. No contract can override that legislation.

Restrictive covenants are inserted into employment contracts to prevent employees from poaching customers, and to prevent empoyees from using insider information to unfairly compete (typically managerial roles, not admin staff).

Because of these opposing principles, this is a bit of a grey area, and it's difficult to enforce such clauses. I've never heard of one being enforced that's more than 12 months. 24 months is pretty excessive and over the top.

You should have no problem recovering damages if you can show that information has been stolen and used to unfairly compete. But if you think you can try to stop an former employee working in the same industry for 24 months (or even 6 months) then I'm afraid you need a reality check.

 

[Consistency]

And yet we hear many people sing the praises of employees and say this is well out of the ordinary. I think there are far far more bad apples than we can prove. Good luck with your case and although expensive I think it is absolutely important that you seek legal advice.

 

[HandH]

UK employment law forbids any practice that imposes a restriction of trade; in short it's illegal to stop an individual plying their trade. No contract can override that legislation.

Restrictive covenants are inserted into employment contracts to prevent employees from poaching customers, and to prevent empoyees from using insider information to unfairly compete (typically managerial roles, not admin staff).

Because of these opposing principles, this is a bit of a grey area, and it's difficult to enforce such clauses. I've never heard of one being enforced that's more than 12 months. 24 months is pretty excessive and over the top.

You should have no problem recovering damages if you can show that information has been stolen and used to unfairly compete. But if you think you can try to stop an former employee working in the same industry for 24 months (or even 6 months) then I'm afraid you need a reality check.

I know 24months is excessive but the employee, who was in a managerial role, effectively started working for the competitor while still working for my company!! Then started working full time for the competitor the day after officially leaving the business from what I can gather.

 

[HandH]

I would suggest you find a solicitor prepared to undertake matters on a no-win no-fee basis.

....... a non-compete clause in an employee's contract will be enforceable to the extent strictly necessary to protect your business.

Thanks for the reply, I've been unable to find a lawyer who will take the case on a no-win no-fee basis. The prices I've been quoted just for writing to the parties involved are much higher than I imagined.

If you're aware of any firms that will act on a no-win no-fee basis I would very much appreciate if you could forward me their details.

 

[longleaf1]

To be honest, I doubt you have a leg to stand on hence you cant find a no win no fee solicitor.
I do feel for your situation but exactly what proof have you got? nothing.

 

[HandH]

To be honest, I doubt you have a leg to stand on hence you cant find a no win no fee solicitor.
I do feel for your situation but exactly what proof have you got? nothing.

To the contrary I have proof from a customer who confirmed that they were approached by the competitor, the customer was told that my business had been supplying products that did not meet industry safety standards (not true) and that the business was in deep financial trouble so they would need a new supplier (again not true at the time).

The competitor also told my customer that they knew the prices we were charging them and they could make them savings. Furthermore the competitor named the ex-employee and confirmed that the employee was working for them so they knew specific information about the customer such as their specific invoice and shipping addresses, order frequency, delivery requirements and their payment terms with my company. This information was only available to the directors and the former employee (of my company) so the source of the leak is obvious.

Furthermore, the ex-employee has contacted at least three of my main suppliers on behalf of the competitor, making slanderous comments about the company.

Sorry for the long post, but if anybody knows of a reputable law firm that works on a no-win no-fee basis I would appreciate if you could pass on their details.

Also if my company is put into liquidation does that mean no action can be taken against the parties involved?

 

[paulears]

You also said

The employee gave customer invoices, customer contact details and supplier information to the competitor. The only other way in which the competitor would have obtained the information is from the customers themselves as certain customers have different prices

So you cannot actually prove they did it, but you 'know' they did, because they must have? This is the problem - and could be why the solicitors are wary - to win any legal case you'd have to have witnesses willing to swear that they were provided with 'stolen' documentation from your company - as in admitting to industrial espionage - I doubt any of your ex-clients would be willing to stand up and admit to this, so all you have is supposition and common sense to support the claim he stole the material and passed it on. The other thing of course is the matter of compensation/damages. Does he actually have enough money to be able to pay you, if, you won. Also consider if you have enough money to pay him if you lose?

 

[Alan R Price]

HandH

A liquidator (receivers are rarely appointed nowadays) would be in exactly the same position as the company to pursue the ex-employee and his/her current employer. So as far as legal action is concerned, the question is, how would it be funded? The liquidator will not use his own money. He may have access to solicitors who will work on a conditional fee basis but the case will have to be strong and able to stand on its own merits.

It sounds to me however that the ex-employee may be guilty of theft if he has misappropriated company documentation or information and given it to his new employer. If the new employer was aware that the information had been dishonestly misappropriated he could be implicated as well. You cannot of course use the threat of prosecution to extort money from somebody however a suggestion that you were thinking of reporting the matter to the police might produce an offer of compensation.

You would however have to be absolutely certain of the facts and able to produce incontrovertible evidence of the dishonesty before taking this approach.

It might be worthwhile our having a chat. Send me a PM with your phone number if you would like me to call you informally at no cost to you.

 

[jules12345]

To the contrary I have proof from a customer who confirmed that they were approached by the competitor, the customer was told that my business had been supplying products that did not meet industry safety standards (not true) and that the business was in deep financial trouble so they would need a new supplier (again not true at the time).

The competitor also told my customer that they knew the prices we were charging them and they could make them savings. Furthermore the competitor named the ex-employee and confirmed that the employee was working for them so they knew specific information about the customer such as their specific invoice and shipping addresses, order frequency, delivery requirements and their payment terms with my company. This information was only available to the directors and the former employee (of my company) so the source of the leak is obvious.

Furthermore, the ex-employee has contacted at least three of my main suppliers on behalf of the competitor, making slanderous comments about the company.

Sorry for the long post, but if anybody knows of a reputable law firm that works on a no-win no-fee basis I would appreciate if you could pass on their details.

Also if my company is put into liquidation does that mean no action can be taken against the parties involved?

may I give a hypothetical situation in this time of email.

Email marketer emails a prospective client with an email that says
paying 20 quid for a case of gin, we'll charge traders 15 quid for the same product.

Canvessed client says hey great - and emails the firm, the firm says scan in an invoice and send us the proof that you are a trader and buy for 20 quid a case.
BINGO

regards
Jules

 

[HandH]

may I give a hypothetical situation in this time of email.

Email marketer emails a prospective client with an email that says
paying 20 quid for a case of gin, we'll charge traders 15 quid for the same product.

Canvessed client says hey great - and emails the firm, the firm says scan in an invoice and send us the proof that you are a trader and buy for 20 quid a case.
BINGO

regards
Jules

I know for a fact that this did not happen in this case. The customer has told me that they were approached by the competitor who told my customer they knew the price they were paying for goods along with other information.

The competitor then offered the product at a lower price (practically cost price) which I had to match to keep the customer.

 

[HandH]

HandH

A liquidator (receivers are rarely appointed nowadays) would be in exactly the same position as the company to pursue the ex-employee and his/her current employer. So as far as legal action is concerned, the question is, how would it be funded? The liquidator will not use his own money. He may have access to solicitors who will work on a conditional fee basis but the case will have to be strong and able to stand on its own merits.

It sounds to me however that the ex-employee may be guilty of theft if he has misappropriated company documentation or information and given it to his new employer. If the new employer was aware that the information had been dishonestly misappropriated he could be implicated as well. You cannot of course use the threat of prosecution to extort money from somebody however a suggestion that you were thinking of reporting the matter to the police might produce an offer of compensation.

You would however have to be absolutely certain of the facts and able to produce incontrovertible evidence of the dishonesty before taking this approach.

It might be worthwhile our having a chat. Send me a PM with your phone number if you would like me to call you informally at no cost to you.

Thanks for the reply, but surely the police would need proof that the ex-employee committed an act of theft? Unfortunately this occurred before we installed CCTV so cannot prove the ex-employee actually took the information.

Also, the new employer knows that the information was, in effect, stolen. I also have a suspicion that the competitor had told the employee to obtain the information in return for a job and possibly a large payment.