I just read a decision from the Fairfax County Circuit Court (Virginia) which is good reading for all corporate officers and directors who start a competing business while working for another employer . The case, Springfield Motors, Inc, v. James Redden, provides informative reading for those enterprising corporate officers who are just “chomping at the bit” to start or join a competitive business.
Mr. Redden started out in sales with Springfield Motors, Inc. (SMI) in 2003 but soon was offered the opportunity to become a shareholder, director, and officer of the corporation. Mr. Redden also signed an Employment Agreement which contained a Non-Compete provision which prohibited Redden from engaging in any business similar to SMI during his employment. It also prohibited him from soliciting or hiring SMI’s employees for any outside enterprises. The Employment Agreement stated that 15 percent of Redden’s overall compensation was consideration for entering into the Non-Compete.
Now here is where Mr. Redden gets into trouble. Mr. Redden, while employed with SMI, started a side business which competed with SMI. He even hired a SMI employee to work for the side business. Not satisfied with these acts of poor judgment, Redden proceeded to “cook the books” and inflate what commissions were due to him from the sale of SMI’s vehicles and reimbursed himself for made up expenses.
Judge Jonathan Thacher found Redden’s actions to be in violation of his non-compete and awarded damages for the violation in the amount of $16,691 (which represents 15% of his salary). The court further found that Redden’s actions breached the fiduciary duty he owed to his company and that his misconduct exhibited “malice” and awarded SMI $5,000 in punitive damages.
My Take: The case is a recipe for how a corporate office should never conduct his business.