It is common for employees to start a business similar to their former employer’s after leaving the company. After all, they merely want to utilise the skill sets they developed during their former employment to now make money from themselves, as the boss.
Now, as discussed in Part 1, employers generally cannot prevent their employees from doing so as that would be considered an anti-competition practice or a restraint of trade which are prohibited by law.
However, while employees have the right to compete with their former employers, they must only do so by lawful means.
If employees conduct themselves illegally, for example by abusing confidential information or trade secrets gained from their previous employer, the former employer can use the law to stop them and/or to seek compensation.
This includes the tort of unlawful interference with trade, which this article discusses.
What is Unlawful Interference with Trade?
In OBG Ltd v Allan [2007] UKHL 21, the House of Lords while recognising that “competition between business regularly involves such business taking steps to promote itself at the expense of the other”, stated the following:
This is not to say that in this field of economic rivalry anything goes. Business people are not free to promote their own businesses at the expense of others by whatever means they may choose. There are limits. The common law has long recognised that some forms of conduct, intentionally damaging other traders, are not acceptable.
Lord Denning MR in Ex parte Island Records Ltd. And Others [1978] 1 Ch. 122 stated that:
Any man who is carrying on a lawful trade or calling has a right to be protected from any unlawful interference with it.
Therefore, whilst competition is encouraged, if illegal means are used, they become unlawful interference that is punishable by law.
Elements of Unlawful Interference with Trade
In Malaysia, the High Court in Megnaway Enterprise Sdn Bhd v. Soon Lian Hock (sole proprietor of the firm Performance Audio & Car Accessories Enterprise) [2009] 8 CLJ 130 sets out the following elements that a Plaintiff has to prove against the Defendant to establish a case of unlawful interference with trade:
- interference with the Plaintiff’s trade or business;
- unlawful means;
- intention to injure the Plaintiff; and
- the Plaintiff is injured thereby.
In the Court of Appeal case of Ly Furniture sdn bhd & Anor v Lifestyle Enterprise Inc & Anor and Another Appeal [2015] MLJU 2347, Nallini Pathmanathan JCA (now FCJ) cited with approval Lord Nicholls definition of “unlawful means” in OBG Ltd v. Allan [2007] UKHL 21 which is “[unlawful means] embraces all acts a defendant is not permitted to do, whether by the civil law or the criminal law.”
Examples of Unlawful Interference with Trade
- Selling, offering for sale, and distributing goods that infringe another person’s copyright
In Megnaway, the Defendant was selling, offering for sale, and distributing an anti-theft system that infringes the copyright of the Plaintiff.
The Court held that, on top of a breach of copyright, the Defendant had also committed another wrongdoing, that is unlawful interference with trade.
As a result, the Court granted the following orders for the Plaintiff against the Defendant:
- Injunction;
- Order of delivery up;
- Order of disclosure;
- Damages up to RM644.400 (considering the Defendant’s unlawful interference with trade has caused loss of profit and damage to the Plaintiff’s reputation and goodwill);
- Interest at 8% pa; and
- Cost
- Encouraging Employees to leave during Employment
Another interesting case is the case of Worldwide Rota Dies Sdn Bhd v Ronald Ong Cheow Joon [2010] 8 MLJ 297, which I encourage all employers to read.
In Worldwide, the Court found that the Defendant, who was a former employee of the Plaintiff, committed the tort of unlawful interference with the Plaintiff’s trade by:
- encouraging and/or influencing the Plaintiff’s employees to leave the employment of the Plaintiff when the Defendant was working with the Plaintiff;
- failing to keep all information obtained in the course of his employment confidential;
- divulging the Plaintiff’s confidential information to the Plaintiff’s competitor, including after he left the company; and
- misrepresenting to the Plaintiff’s customers with the sole aim of damaging the Plaintiff’s reputation and/or business.
The Court ordered the Defendant to pay RM2,095,780 as damages and losses with interest at 8% per annum to the Plaintiff.
Conclusion: Lessons for Business Owners and Employers
While the tort of unlawful interference with trade remains a growing area of law and a developing cause of action, business owners should keep it in mind.
This is because it is a useful tool that can be utilised against competitors, including former employees-turned-competitors, if these people intentionally injure your business through unlawful means.
Other than suing for the “unlawful means” committed by these people, such as breach of contract, breach of duty of fidelity, breach of confidence and more, business owners can also sue for unlawful interference with trade; this will increase their entitlement for monetary compensation and other relieves such as injunctions.
Ultimately, it is another useful weapon to keep in the arsenal to protect one’s business.
Do stay tuned to this mini-series designed to help employers protect themselves from employees-turned-competitors. The upcoming topics include breach of confidence, team moves, and legal remedies (including injunctions, smart HR policies, and pre-emptive employment contracts) that can be used to protect the company and business.
If you need any further clarification or advice on this topic, please feel free to Contact Me.