Three former employees of a Maryland construction company engaged in unlawful actions by starting competing business ventures while still employed by Modern Remodeling, Inc. (MRI), determined a Maryland federal court jury at the end of 2021. In connection with these new businesses and while working for MRI, the company alleged that the individuals used company resources, took and disclosed confidential information, solicited employees and customers, diverted business and destroyed/deleted information, including non-compete agreements and relevant emails and texts. In connection therewith, the jury found in favor of MRI and awarded a $7.5mm verdict against the defendants.
As an employer, it is critical to exercise appropriate oversight of employees’ company related actions. Employees who are seeking to start a competing business, or even those simply looking for a new job, are often found to have used company resources to further these endeavors while still employed. Sometimes, those individuals have used confidential information and also solicited or diverted business. Running a “tight ship” can help avoid some of these pitfalls. Following are a few suggestions:
- Written confidential information should be under lock-and-key and electronic confidential information should have password protection or other access limitations.
- The ability for an information technology department, consultant or vendor to retrieve deleted items and perform forensic analysis on digital communications is important. This involves review of a company’s computer systems before there is an issue to be sure the correct safeguards are in place.
- Constant monitoring of accounts payable is critical.
- Requiring more than one signature on company checks or bank authorizations significantly reduces the likelihood of embezzlement and theft.
- Regular contact and good communication between supervisors and employees is an effective tool to reduce or uncover potential issues before they become larger problems.
The case referenced above dealt with issues of unfair competition, destruction of evidence and an employee’s duty of loyalty to his or her employer, all of which are important protections for a company. But the road to economic recovery against a former employee can be long and expensive. Making sure the safeguards mentioned above are in place can substantially reduce the risk of those types of issues in the long run.