Does a conflict of interest continue after you have resigned?

Question: Hi, Alan. I am Rena from Malaysia. I need your help on a question about a conflict of interest.

I previously held a high position in an organization. While working there, I noticed that one of the services provided by the organization was not provided well to customers. So, I established another organization under my husband’s and dad’s name. Some of the customers switched over to the new organization I established.

I have left my previous employer, and some of the customers who moved over to my new organization are still using my new organization’s services. My previous employer is upset, and is threatening me.

My question: Is the present situation a conflict of interest, and can my previous employer sue me for this? I am in a state of confusion. Please advise.

Ipoh, Perak, Malaysia

Answer: Dear Reena: Many people find the subject of “conflicts of interest” to be confusing. Though I am not licensed to practice law in Malaysia, I can do my best to explain basic concepts and offer you some relief from your confusion:

1. While employed, employees owe a duty of “loyalty” to their employers. A central part of the employment relation is the duty of an employee to be “loyal” to his or her employer. That “loyalty” is not absolute, but has some limit: after all, the employee is not a slave. But one part of that required “loyalty” is that an employee is not supposed to act in competition with his or her employer while employed. Working “for” an employer and, at the same time, working “against” the employer is the clearest “conflict of interest” I can imagine. After all “Which side are you on?” Imagine what you would think if you heard a soldier was fighting for his army, and at the same time he or she was fighting against his own army; sure would seem wrong, wouldn’t it?

2. However, the moment the employment relation ends, the now-former employee is free to compete with the now-former employer. The very moment that an employment relation ends – for whatever reason it may end – the employee becomes free to engage in direct competition with his or her employer, provided that the employee has not signed a non-compete agreement. For more information on non-compete agreements, simply [ click here ].

3. But, an employee who has violated a “duty of loyalty” can be sued for any (i) damages during employment, and (ii) damages that were experienced even after the employment. This is what gets most people confused.

Imagine if a person is driving a car and runs over another person on a bicycle, who suffers a broken leg. The bicyclist can sue the driver of the car for that broken leg. Imagine that, as a result, the bicyclist is out of work for 10 months and has lost income for that 10-month period. The driver is responsible for (a) his bad driving while on the road, and (b) the damages for the broken leg (on the day of the accident) and for the lost income (that occurred later.) In the same way, an employee is responsible for (a) his disloyalty that took place during employment, and (b) the employer’s lost income in the future, whenever it takes place.

4. It is for these reasons that addressing a conflict of interest at work – by getting permission while you are employed – is often the wisest course of action. Disclosure and consent is the way to get around the restrictions imposed by the employee’s loyalty duty. Employees who either (a) find themselves in a conflict of interest at work, or (b) would like to compete with their employer, usually in some “incidental” or “inconsequential” way, are often best served by addressing the situation with their employers, and gaining permission to engage in the conflicting activity. “Sunshine is the best disinfectant.”

If you are interested in obtaining a Model Letter entitled “Addressing a Conflict of Interest at Work,” simply [ click here ].

So, Reena, your competition with your employer could result in a lawsuit against you, and the damages in that lawsuit for years to come. I would suggest that you contact a local lawyer to assess the situation, and to be prepared in case you are, indeed, sued. Sorry I don’t have better news for you, but I believe it is the truth that you really want.

I hope this information is helpful. Thanks for writing in from Malaysia.

My Best,
Al Sklover

P.S.: Become part of a growing movement; help others while you help yourself! Become a SkloverWorkingWisdom™ Sales Affiliate – encourage others to take advantage of our Model Letters, Memos, Checklists and Agreements. Earn a substantial commission. Just [click here.]

© 2012 Alan L. Sklover, All Rights Reserved.

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