Written by attorney Lawrence B Hunt

Employees’ Duty of Loyalty to Their Employer: Another Route to Employee Liability

Employees owe a common law duty of loyalty to their employers. During their employment an employee can’t solicit customers or other employees for a competing business without violating that duty and incurring liability to their employer.

The breach of that duty can become particularly significant when one or more employees plan to join or start a business in competition with their present employer. Often employment agreements provide that the employee is obligated to not solicit their employer’s employees and customers on behalf of a competing business for a period of time after the termination of their employment without explicitly addressing the assumed loyalty of the employee during their employment. Yet even in the absence of any written employment agreement, an employee cannot organize or assist a competing business without incurring potential liability for breaching their duty of loyalty.

A recent decision by the Washington Court of Appeals illustrates the potential value of the duty of loyalty to a former employer damaged by the competitive business planning activity of their employee.

In Evergreen Moneysource v. Shannon, 167 Wn.App. 242 (2012) the employer brought claims against its former employee who had made offers of employment with his anticipated new employer to several co-employees while working for the plaintiff. The Court of Appeals sustained the trial court’s award of summary judgment to the former employee on the plaintiff’s claim that he had breached his written employment agreement because that agreement only forbade the solicitation of the plaintiff’s employees while the defendant worked for the plaintiff. At the same time the Court of Appeals reversed the trial court’s award of summary judgment to the former employee on the plaintiff’s claim that the employee had breached his duty of loyalty by soliciting other employees of the plaintiff while working for the plaintiff.

Of course to succeed on any claim against a former employee for breach of the duty of loyalty it is essential to prove damages as well as liability. Thus it will be important for any employer asserting such a claim against a former employee to begin identifying, monetarily quantifying, and substantiating their actual injury from the breach as soon as possible.

© 06/18/2012 Lawrence B. Hunt of Hunt & Associates, P.C. All rights reserved.

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