How to calculate damages when employees depart: A primer

A recent case from a Houston appeals court sheds light on damages available when employees leave to form a competing firm or join a competitor. The lesson: Claiming damages is one thing—proving them is another.

Rough and tumble in the oil patch

DNOW is a company in the West Texas oil fields providing pump sales and services. When 13 DNOW employees left various offices to go to another company called Permian, they allegedly took confidential information with them. A lawsuit was filed against them, asserting theft of trade secrets. And what is a lawsuit if there’s no rainbow at the end?

Here are some of what DNOW claimed and how the symbols lined up on the slot machine that is litigation.

Lost profits? No dice

DNOW claimed that one of its West Texas offices suffered lost profits when employees left. It put an expert witness on the stand to offer an estimate of the losses. But she offered only a conclusion on what was lost, failing to explain “how” she came up with her number.

Indeed, she failed to identify:

• Which contracts were lost because of the departures;
• How many were lost;
• The number of profits DNOW would have realized from these contracts; and
• The identities of those awarding the contracts.

While the trial court awarded lost profits, the appeals court zeroed out the award.

Lost productivity, retraining, recruitment of new employees