When an employee becomes a competitor

Our manager quit to start his own business,” says my friend K, the head of a services company. “He told us that he had to take care of his sick parents, but we found out that a month later, he set up a business that directly competes with us. We want to sue him.”

“Did he sign a contract forbidding him to compete with you?” I ask. “A noncompete clause is usually part of the hiring process.”

“He came to us 20 years ago,” K says. “HR was run by my mother, and she never made employees sign such contracts. Now our HR is professionalized, so we have such contracts.”

“Suing your manager is not wise,” I say. “Without documents as proof, you will not win the case.”

“But it is so frustrating!” K cries. “We trusted him. We trained him. He came to us as staff and he left as senior officer. Ang bastos ng ginawa niya [What he did was rude].”

“Were there signs that he was planning this?” I ask.

“Maybe we were in denial,” says K. “But looking back, he was getting too friendly with suppliers and customers. He is likely poaching them. How do we stop him?”

“Ask your lawyer, but legally I don’t think you can stop him,” I say. “Call your major suppliers and customers, tell them what he did, and warn them about his possibly approaching them. But if he promises better terms, lower prices, and faster service, you cannot stop them from choosing him. This is how the market works.”

I sent K an article from “The Straits Times” by editor Tan Ooi Boon, entitled “Hard for firms to prevent former star employees from competing.”

Tan describes how an employer sued his former employee for allegedly misusing customer data to channel proceeds to his newly created company. The judge said the case was “fueled by a sense of betrayal and indignation, and the hard feelings were made more acute because the principal characters … had shared relationships outside of business and work.”

The employee’s actions even breached the employment contract, but the judge found the employer’s case “anemic,” because there was not enough evidence that losses had been suffered due to the employee’s actions. The employee ended up paying only a nominal amount to his former employer, while the main complaint against him was dismissed.

“We invested so much in him,” says K. “He got to where he is now because of us.”

“Multinationals such as banks know that there is no way to stop people from using what they learned or experienced in a previous position in their new jobs,” I say.

READ: Are non-competition agreements anticompetitive?

“Piracy is rife in the financial sector—my students go through three companies in the same number of years, and firms know this. The most they can do is to delay direct competition by forbidding employees from joining similar businesses right after they leave. But restrictions expire quickly. There is no legal or moral way to force your employees not to compete with you at all.”

“The law frowns at attempts to curb the freedom of employees to further their careers,” writes Tan.

“You are a good man,” I tell K. “In fact, aren’t you a bit proud that you were able to train an employee so well? You are angry now, but you helped him grow, even if it is to your detriment. Can you take some comfort in that?”

“When you put it that way, I feel better,” says K. “But I wish he did not stab us in the back.”

“I agree,” I say. “Even if legally there is nothing you can do, he treated you badly. I need to ask—is he pirating other employees?”K sighs. “He has a posse in the office, so I won’t be surprised.”

“Talk openly with your employees as soon as possible,” I say. “HR can facilitate, but if you are up to it, it is best for you to face your people directly. Ask them how they feel about work, and if you can help them in any way.”

“If bosses don’t want their most talented employees to quit and join their competitors,” writes Tan, “treat them so well that they would never think of leaving.”

Queena N. Lee-Chua is with the board of directors of Ateneo’s Family Business Center. Get her book “All in the Family Business” at Lazada or Shopee, or the ebook at Amazon, Google Play, Apple iBooks. Contact the author at [email protected].