Question

CHAPTER 35 – THE AGENCY RELATIONSHIP

John Gregorian had a business selling expensive, customized print calendars to individuals. After several years where the business grew every year, he agreed to sell it to a larger, older company, Custom Products, Inc. As a part of the transaction, Gregorian agreed to stay on for a period of three years to manage his former business. Gregorian signed an employment agreement that included several terms including his compensation, his appointment as a vice president of Custom Products, Inc., his job responsibilities and his agreement not to disclose any confidential information. During this period of employment, he gave his old business’s customer list to a friend and agreed to consult with her to help build her business selling custom photo frames. His boss at Custom Products, Inc. discovered this and called you, his lawyer, to find out if he had a good basis for suing Gregorian and what he could claim. How would you advise him?

Answer 1

John Gregorian has sold his business of selling print calendars and now joined the company which has acquired his business. He has been appointed as a vice president there and the appointment included some terms and conditions and also his responsibility that he would not disclose any confidential information.
However, John gave the customer's list from his old business to his friend and agreed to consult with her for her business.
Now, the customer list is definitely a confidential matter of the firm and when he sold his business to Custom Products Inc. then obviously his erstwhile customers are now the new company's customers. The handing over such data to a friend does account for breach of contract. Although, John's friend could not be a direct competitor to Custom Products Inc. but in the future, it might be and with customer's information it could easily capture the company's existing clients.

The claim in such case depends upon the size of the customer's list and their share in the company's overall revenue. If the magnitude of such a breach is small then the company could ask John for an apology and some financial damage. If that is medium level then it could request the court to restrict John's friend from doing any business with the customer as they have been acquired by deceitful means. If the damage is quite big then the company could ask John to step down and restrict his friend from doing any business with the company's customers.