What is considered unfair competition?

December 5, 2019

Topics: Employees as Competitors

Competition plays an important role in our economy.  When two or more businesses sell the same or similar goods or services to an identical potential customer base, the sellers are all trying to make a profit and to obtain market share for their company.  They each try to offer the best possible combination of quality, price and service, sometimes carving out a niche for their company from the general market place.  The existence of competition regulates supply and demand and helps to keep prices in line.

Employees who leave one employer have a legal right to compete with that former employer by going to work for a competitor or by opening up his or her own competing business.  In many (but not all) locations, these rights can be restricted by written non-competition agreements.  But absent such a document, competition is generally lawful and considered a positive force in the marketplace.

Unfair competition, however, is an unlawful practice that can form the basis of claims against former employees.  Unlawful competition occurs when former employees utilize their former employer’s confidential information and trade secrets to compete.  This could include, for example, approaching customers of their former employer, knowing the customer preferences and discounts, and intentionally offering lower prices on similar items to unfairly undercut the market.  It could also include a combination of misappropriation of trade secrets as well as trademark misappropriation and infringement by coming out with a competing product so similarly named (but cheaper in quality) to a product known by the former employee to be in beta-testing stages.  It could likewise include other improper business practices that cause economic injury to the former employer such as spreading harmful and false rumors about the prior employer and its management team, poaching key employees, and posting bad on-line reviews about the company and its products.

When employees leave to form their own competing business, take no confidential information, and properly seek to acquire their own staff and customer base, an employer would be hard-pressed to stop these actions absent having had the employees sign a restrictive covenant agreement while employed (presuming the business is located in an area that permits these restrictions).  Should the business become aware that a competitor to which a former employee transitioned seems to know its marketing plans; drops prices just before it does; advertises new developments just in advance of its own similar, if not identical, new product launch; and is taking more of its customer base than could be explained by a usual promotional campaign, the company may be the victim of unlawful and unfair competition.  In such a case, contact an employment attorney familiar with the laws of your business’s location to determine what legal actions it may be prudent to take.