What Is An Employee’s “Duty Of Loyalty”?

October 6, 2017

Topics: Employees as Competitors

Employees have certain legal duties to their employers.  These are not often discussed and may seem like one of those “everyone knows” facts.  However, in an era where common sense is not so common, it behooves employers to ensure that their current employees are living up to their obligations.

Although state common law can vary, a current employee’s duty of loyalty usually includes the following:

  • Acting in the company’s best interests: This includes making sure that contracts with vendors reflect the best deal for the company; ensuring that company insurance policies are properly renewed; ensuring that company assets are properly insured; not discounting company products so that the company makes no profit.  In other words, taking actions that protect the company and its assets and help it flourish and prosper.
  • Not competing with his or her employer: Current employees are not to work for competitors or set up competing companies that divert potential clients and opportunities.
  • Not to divert business to a competitor: The obligation not to compete directly includes the obligation not to divert business to a competitor, nor to withhold potential business opportunities from a current employer with the intention of bringing them to a subsequent employer.  As noted above, employees’ legal obligations are to act in the best interests of their current employer.
  • Protecting the company’s confidential and proprietary information: Current employees whether they have signed confidentiality agreements or not, have obligations not to improperly use or disclose their current employer’s confidential information and trade secrets.  This duty of loyalty extends beyond the time period of employment and prohibits the employee from using a former employer’s confidential information and trade secrets on behalf of a subsequent employer as well.  However, it is not a breach of the duty of loyalty to use the experience, general industry knowledge or skills obtained while employed for a subsequent employer.

Employee confidentiality and non-solicitation agreements can, and should, include written affirmation of the current employee’s obligations, as well as those obligations the company wishes to impose post-employment.  Employment counsel can ensure that such agreements contain the various protections that your company needs.