Can a company be sued for working with a former employee of a competitor even if the company does not steal any of the competitor’s customers?

Can a company be sued for working with a former employee of a competitor even if the company does not steal any of the competitor’s customers?

Yes, as shown by a recent Virginia federal decision.  In that case, a company allegedly agreed to buy business information and materials from an ex-employee of a competitor.  The ex-employee was subject to a non-compete, and offered to sell information concerning four customers that he had taken with him after leaving the competitor.  The company never hired the ex-employee, and the competitor did not allege that the company had ever stolen or serviced any of its customers.  See AWP Inc. v. Commonwealth Excavating, Inc., No. 5:13cv31 (E.D. Va. Jul. 24, 2013).

The competitor sued the company (but not its former employee) alleging that the company wrongfully obtained confidential information, and caused the competitor to suffer damages (including lost business and harm to reputation and goodwill).  It claimed that the company violated the Virginia Uniform Trade Secrets Act, engaged in a statutory conspiracy, tortiously interfered with the competitor’s business relationships, and was unjustly enriched.

The company asked the court to dismiss the lawsuit because it did not specifically identify harm to the competitor, such as lost customers, or any benefit received by the company.  The federal court denied that motion to dismiss, however, and found that the complaint alleged the taking of secret customer data and resulting business damages sufficient to support the claims.  Because the court allowed the conspiracy claim to proceed, the company could be held liable at trial for three times the amount of any damages awarded plus the plaintiff’s costs and attorneys’ fees in the litigation, as well as punitive damages.

The court’s decision demonstrates how strongly Virginia law prohibits unfair competition and business practices.  If your company is considering hiring or otherwise doing business with an individual who previously worked for a competitor, and has sensitive information or a restrictive covenant, you should promptly contact employment law counsel.  We can help your business avoid claims that could threaten the livelihood of your company and its principals.

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