It’s a scenario that every business owner is familiar with. An employee who has worked with a business for years, and learned all the ropes, quits and starts a competing business of his own. The parting of ways can be pleasant, cold and business like, or acrimonious. In the first two instances, the employer finds replacements and carries on, taking legitimate steps to protect his business from the new competitors who know his way of working and trade secrets inside out. But when the parting turns into a fight, things can get ugly very soon.
Defamation and Other Claims
In a recent case a California wealth adviser was ordered to pay over $3.5 million to 2 ex-employees for defaming them. The ex-employees in their suit claimed that the former employer had had made defamatory comments and accusations against them after they left him and started their own financial advisory services.
The claim was that the old employer has made accusations of fraud, planted false evidence and pressurized one of his clients to manipulate Google’s search results so that negative comments and defamatory accusation were a major component of the results. The case came up before the Financial Industry Regulatory Authority. There were 3 arbitrators, all ‘public arbitrators’ with no connections to the securities industry. This may have been a good thing as they would not, in theory, have been subjected to pressure or attempts to influence them unfairly. On the other hand, they had no hands-on knowledge of the working of the industry and the ground realities. The ruling was in favor of the ex-employees who were awarded $2.5 million in punitive damages. In addition, compensatory damages of $800,000 were levied. The ex-employer also had to pay for the opposing sides’ attorney fees which came to almost $340,000.
The ruling is going to be appealed. One of the grounds is that the arbitrators had no knowledge of the industry and were thus not component to make any ruling in the matter.
Ignore the Merits of the Claim
In cases like this it is always difficult to evaluate the merits of the claim made by either side. Often there are no clear cut blacks and whites – just shades of gray. The competency (or the lack of it) of the arbitrators is also often open to debate. What is important is the financial blow that the employer suffered. It is the sort of thing that can happen to any business owner. The owners may have done nothing wrong but the ruling goes against him. Or he may have inadvertently said or done something that he should not have. Either way, the loss from this kind of situation can cripple or even destroy a business.
This is where having the right kind of business insurance coverage becomes critical. Claims and counter claims are a part of business and losing this kind of case will not necessarily harm the ex-employer who should be able to recover from the loss of two employees quickly. But the financial loss is another matter. The right kind of business insurance coverage will protect against the financial loss. In many cases a general liability business insurance policy will offer coverage in these types of circumstances. If you are a business owner or employer, you should check your coverage to see if you are adequately protected from being sued for slander, libel or defamation. Wherever the fault lies or even if there is no fault and the whole thing is just a misunderstanding, the cost of losing can massive. And even if you win, the legal fees you have incurred can be huge. With the right type of insurance, the financial cost of being sued is something you do not have to worry about.
Contact Insurance by Allied Brokers with your questions about business insurance, safeguarding your business against unexpected future risks and potential financial losses. Call us (650) 328-1000 or visit us at http://www.alliedbrokers.com/.