The Use of Your Business Information by Former Employees

By Gerry Fagan

In another article, I discussed how a properly drafted covenant not to compete can help prevent some types of competition, especially by an ex-employee or a seller of a business. A related area concerns the kinds of information that employees are allowed to take from their former employers. Through their employment, employees gain information concerning the business methods of their employers and often become closely acquainted with their employers' present and potential customers. Upon termination of employment, employees may wish to take and use what they have learned to compete with their former employers. This issue can be especially crucial to small businesses that are driven by sales to well-defined or hard to discover customers.

First and foremost, employees owe an absolute duty of loyalty to their employers. As a result, employees may not compete in any way against their employers during employment. In addition, under Montana law, employers own anything of value, other than compensation, that employees acquire during their employment. Employers would, therefore, seem to have the upper hand. However, Montana courts attempt to balance the right to work and the owners' desires to protect their businesses. This balancing results in Courts allowing employees to take and later use the experience that they have gained from their employment. However, it also results in Courts preventing employees from using information that is confidential. Often, especially in sales, a battle ensues over exactly what is information gained through experience and what is information that is confidential. The Montana Supreme Court has attempted to delineate this issue several times. In one case, the Court allowed a milkman to continue selling to his former customers because it found that the identities of those customers were not confidential information because it would not be difficult to figure out who those customers were. Likewise, the Court on two separate occasions would not prevent insurance salespeople from selling for new agencies to their former customers because it felt that the customer names alone were not confidential. However, it is apparent that the standard here is a subjective one and open to interpretation.

At Moulton Bellingham, several attorneys have a thorough knowledge of employment law. We can help in all aspects, including the drafting of agreements to prevent future problems, and the settlement and litigation of any problems that do arise. Please contact us if you have any questions or require further assistance.

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