5 March 2012

Two new Supreme Court rulings concerning the liability in damages of employees in case of conduct contrary to the Marketing Practices Act

On 26 January 2012, two Supreme Court rulings were delivered concerning the liability in damages of employees in case of conduct contrary to the Marketing Practices Act. In one case, the employee and his new employer were ordered to pay damages for their conduct, while the Court in the other case found that it had not been proved that the conduct of the two employees was contrary to the Marketing Practices Act.

Under section 19 of the Marketing Practices Act, a person under a contract of service with a business, who has obtained knowledge or disposal of trade secrets in a lawful manner must not pass on or make use of such secrets.

Section 1 of the Act further states that traders must exercise good marketing practices with reference to consumers, traders and public interests.

In addition, the employee is subject to a strict duty of loyalty in relation to the employer as long as the employment exists, meaning that the employee must refrain from competitive activities. Dette medfører blandt andet, at denne skal afstå fra konkurrerende handlinger.

The employee was liable in damages

The first case concerned a seller, who terminated his employment in December 2004 for expiry by the end of January 2005. The employee was reported sick in January 2005. The Court found that it had been proved that the employee had worked for a competing company while being absent due to sickness. The employee had assisted the competing company in making an offer to one of the former employer's customers. This resulted in the customer changing supplier in March 2005 choosing the competitor.

The Court found that it had not been proved that the employee had passed on business secrets, but that he had seriously neglected his duties towards the former employer by having performed competing conduct, which could damage the business of the former employer. The employee had thereby acted in a way giving rise to liability. The Court stated, however, that in January 2005, the employee was employed with the former employer, and he was not a trader, and he could therefore not be considered to have independently violated section 1 of the Marketing Practices Act.

The Court further stated that the competing company had acted contrary to good marketing practices thereby violating section 1 of the Marketing Practices Act as the competing company had made use of the employee's assistance when preparing the offer to the potential customer. The competing company should have realised that the employee set aside his duties towards his former employer. The competing company had thereby also acted in a way giving rise to liability.

The Court found that they were both jointly and severally liable in damages for the loss suffered by the former employer by loosing the customer. Damages were fixed at DKK 300,000. 300.000.

Two employees had not acted in a way giving rise to liability

In the other case, the employees 1 and 2 changed employment from property management company S1 to another property management company S2 by the end of 2005. Shortly after, four housing associations ended their agreements with S1. Instead, they entered into agreements with S2.

S1 claimed damages from both employees for the loss suffered due to the four housing associations having ended their agreements. S1 claimed that the two employees had made use of S1's business secrets thereby acting contrary to good marketing practices.

The Court found that it should be taken into account in terms of evidence that the four housing associations had on their own initiative changed property management company as they were not satisfied with S1. The housing associations had contacted employee 1. Furthermore, the Court found that it had not been proved that the employees' use, if any, of S1's forms had speeded up the change of property management company.

The Court concluded that it had not been proved that S1 had suffered a loss due to the employees' conduct. The Court therefore found in favour of the employees.

Comments

The first ruling is interesting as the new employer was considered jointly and severally liable as the employer's conduct was contrary to section 1 of the Marketing Practices Act. Such liability may be relevant in obvious or gross situations where it should have been clear to the competing company that it would result in unlawful conduct.

This ruling is further interesting as the Court states that the fact that the employee at the time of the assistance to the competing company was an employee, and not a trader, results in section 1 of the Marketing Practices Act not having been independently violated by the employee. This seems to be a contravention of the previous assumption in legal literature.

In cases concerning violation of trade secrets it often turns out that the companies have difficulties proving that the trade secret was exploited, and that the exploitation resulted in a financial loss. Very often, there are also other competitive reason for the company loosing the customer, and it may be difficult to prove what exactly happened at the competitor. The two rulings illustrate in various ways the challenges in terms of evidence in relation to the violation, the loss and the statement of loss.

The content of this Newsletter is not, and should not replace, legal advice.

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