Former Employer Establishing A New Firm - Soliciting Former Clients After A Period Of Time Has Elapsed

It is not unusual for engineers, employed by others, at some point, to break off from their employer and go into business for themselves. This is a fundamental principle of this nation’s free enterprise system and generally should not be discouraged. As a general matter, this practice raises no ethical issues for the BER’s consideration.

However, the Code does address some issues that could arise in this context and provides ethical guidance where the engineer considers this business option. The Code addresses the use of confidential information concerning the technical affairs or processes of the former employer, promotional activities and negotiations for employment or business, and the involvement of the engineer in adversarial situations relating to the former employer. (See NSPE Code Sections III.4., III.4.a., III.4.b.).

The Board has previously addressed similar cases. In Case No. 86-5, a city requested proposals from various consulting engineers for a major job that was planned. Engineer A, a principal in a large engineering firm in the city decided to have his firm submit a proposal. Engineer A asked three engineers on his staff, Engineers X, Y, and Z, to develop the proposal for the firm. Engineers X,Y, and Z developed the proposal which was ultimately submitted to the city. Soon thereafter, the city learned that Engineers X, Y, and Z are the engineers who actually developed the proposal, for the firm and a city official approaches Engineers X, Y, and Z and asks if they would agree to a contract as consultants, independent of Engineer A’s firm. Engineers X, Y, and Z disclose the facts to Engineer A, resign from the firm, and enter into negotiations with the city. The Board concluded that a strict interpretation of the Code under the facts of this case led to the conclusion that it would be ethical for Engineers X, Y, and Z to agree to a contract for consulting services independent of Engineer A’s firm.

In reaching its conclusion in Case No. 86-5, the Board reviewed two earlier BER cases, Nos. 77-11 and 79-10. In Case No. 77-11, the Board found that four engineers who left the employ of a firm, founded a new firm, and contacted the clients of the former firm were not in violation of the NSPE Code for doing so. However, the Board did determine in Case No. 77-11 that the four engineers did violate the NSPE Code with regard to projects for which they had gained specialized knowledge while in the employ of the firm. In Case No. 79-10, the Board determined that an engineer employed by a firm that was winding down its operations, who sought to offer his services to complete projects under his own responsibility and risk without the concurrence of the principal of his employing firm, was ethical. In reviewing each case, the Board noted the need to balance (1) the interests of the client in retaining the firm of its choice; (2) the interests of the individually employed engineers; and (3) the interests of the firm and its interest in maintaining business goodwill with its clients. No one can deny that a client has a right to retain the engineering firm of its choice. What must be addressed, however, is a method to effect that right in a manner that is both fair and equitable to all of the concerned parties.

Turning to the specific facts of this case and balancing the interests of all parties involved in this matter, the Board believes that Engineer A’s actions and conduct were ethical. As to the first issue, the Board can find no general ethical proscription limiting Engineer A’s decision to establish an engineering firm. As to the second issue, regarding Engineer A’s solicitation of business, the interests of the client mandate BER concern. It is clear that the client, Clover City, is favorably disposed towards establishing a contractual relationship with Engineer A. Although Clover City was a major client of ABC, under the facts it appears that ABC’s business with Clover City was related strictly to the presence of Engineer A in the firm. There does not appear to be any indication that Clover City’s interest in ABC’s services goes beyond the services provided by Engineer A. Moreover, unlike Case No. 77-11, it does not appear that Engineer A has obtained any particular specialized knowledge as an employee of ABC that would restrict his ability to establish his own firm and eventually compete with ABC. There was no formal written agreement between Engineer A and ABC that would address the issue of whether and under what terms Engineer A could compete with ABC after departing from ABC. In fact, Engineer A still declined an apparent offer of work by Clover City, decided not to compete directly with his former employer, ABC, and waited for a period of over a year before deciding to go into competition with his former employer, ABC.

We believe Engineer A’s conduct is appropriate and within the bounds of what would be considered reasonable, particularly since Engineer A was an employee of ABC and not a partner or principal of the firm. While Clover City may have expressed preliminary interest in Engineer A’s future services, there was no formal agreement between Engineer A and the city and no guarantee that with the passage of the year, Engineer A’s solicitations for work would be positively received by Clover City. The fact that Engineer A declined to participate on an active project at the time that Clover City sought his assistance might have made Clover City far less likely to be interested in Engineer A’s services.

This case does not appear to be dramatically different than Case No. 86-5 in that a client with a relationship with an engineering firm has sought out personnel within that firm to perform services for the benefit of the client. However there appears to be one difference. In Case No. 86-5, the three engineers disclosed the fact that the client was interested in their services to their employer before resigning, while in the present case, there is no disclosure between Engineer A and ABC. However, weighing all factors, the Board does not consider this to be particularly significant because (1) the engineers in Case No. 86-5 provided disclosure and did not seek consent or concurrence and (2) in the present case Engineer A’s decision to depart from ABC and establish his own firm clearly appears to be motivated by factors independent from any relationship that Engineer A might be developing with Clover City.