Augat, Inc. v. Aegis, Inc. - 409 Mass. 165, 565 N.E.2d 415 (1991)

Rule:

There are certain limitations on the conduct of an employee who plans to compete with his employer. He may not appropriate his employer's trade secrets. He may not solicit his employer's customers while still working for his employer, and he may not carry away certain information, such as lists of customers. Of course, such a person may not act for his future interests at the expense of his employer by using the employer's funds or employees for personal gain or by a course of conduct designed to hurt the employer.

Facts:

The individual defendant, Scherer, was one of the three stockholders who sold Isotronics, Inc. to plaintiff Augat, Inc. in 1975. He continued to work for Isotronics until 1983. One month after his agreement not to compete with Isotronics expired, Scherer formed the defendant Aegis, Inc., intending to manufacture high reliability metal and ceramic microcircuit packages. Scherer talked to the employees of Isotronics, who, subsequently left the latter and went directly to work for Aegis. Augat and Isotronics brought the present action against Aegis and Scherer, claiming, inter alia, that Aegis knowingly joined the employee’s breach of fiduciary duty by secretly soliciting the other personnel and that the employee wrongfully revealed confidential information to the company. The trial court held that Aegis wrongfully obtained confidential information of Isotronics. It further ruled that Aegis was liable for joining the employee in soliciting other key personnel while the employee was acting as general manager for the employer. Aegis was granted leave to prosecute an interlocutory appeal by the Appeals Court (Massachusetts). The Supreme Judicial Court of Massachusetts transferred the case on its own motion.

Issue:

1. Did Aegis wrongfully obtain the confidential information of Isotronics?
2. Was Aegis liable for joining the employee in soliciting other key personnel while the employee was acting as general manager for the employer?

Answer:

1) No. 2) Yes.

Conclusion:

The Court reversed the trial court's ruling that Aegis wrongfully obtained confidential information of Isotronics. According to the Court, there was no breach with regard to certain information as Isotronics had already made that information known to the public. However, Aegis was liable for the breach of the employee's duty of loyalty with respect to the key personnel. The employee, as a general manager of the employer, had a duty to maintain adequate managerial personnel that forbade him from seeking to draw key managers away to a competitor. Because there was no finding that Aegis would not have obtained financing had these employees not gone to work for it, Isotronic’s damages had to be based on losses it sustained but for the breach of the employee's duty of loyalty.