The duty of loyalty and good faith applies as long as the employment relationship lasts. Thus, a former employee is generally free to conduct competing activities after the termination of the employment – provided that the employee is not bound by any non-compete clauses prohibiting such actions. However, former employees cannot use protected trade secrets and other proprietary information to compete with their former employer and gain an unlawful advantage in the market. Using such information in the market may constitute a breach of relevant sections of the Marketing Control Act and the Trade Secrets Act.
Westad claimed that Party A utilized protected drawings and information in bad faith to start its competing business in breach of the Marketing Control Act. Party A's employment agreement referred to a general confidentiality clause in the Westad personnel handbook but did not hold a non-compete clause. Westad claimed that WCS's drawings were based on the information Party A had access to during his employment in Westad and that Party A had received Westad's drawings from Party C.
The Court of Appeal found that the drawings Party A received from Party C constituted a breach of the Marketing Control Act sections 28, 29 and/or 25. However, the Court of Appeal also found that the drawings were not used for any production. Consequently, the obtained drawings had not given Party A or WCS any unlawful business advantage or resulted in any actual loss for Westad.
Party A had given a third party ("Party B") the assignment to produce drawings on behalf of Party A. Party B had previously produced similar products for Westad. However, the Court of Appeal found that the specific measurements in the drawings did not correspond with those in Westad's drawings. Party B testified that he had used Westad's drawings obtained from the open internet and products received by Party A to reverse engineer and establish the drawings. The products delivered by Party A were Westad products that Party A had received from customers. Although confidentiality clauses bound the customers, the Court of Appeal concluded that the confidentiality clauses could not be regarded as limiting the customers' right to dispose of the products. Thereby, products received from the customers could legally be used for reversed engineering.
The Court of Appeal concluded that neither the time it took Party B to produce the drawings nor Party B's previous consulting assignments for Westad indicate that Party A should have suspected that Party B had unlawfully created the drawings. Accordingly, the Court of Appeal found that Party A and WCS had not acted in breach of the Marketing Control Act and that they could not be held liable for any loss of income endured by Westad as a result of their competing businesses.