California law provides that an employer has the right to the undivided loyalty of its employees. If the employee breaches this duty, he or she may be liable to the Company.
What is the Duty of Loyalty?
The duty of loyalty arises not from the employment contract but from the employer-employee (principal-agent) relationship. [Huong Que, Inc. v. Luu (2007) 150 CA4th 400, 410–411, 58 CR3d 527, 535—allegedly narrower non-competition clause in employment contract did not excuse or limit employees’ duty of loyalty]. The duty of loyalty embraces several subsidiary obligations, including the duty “to refrain from competing with the principal and from taking action on behalf of or otherwise assisting the principal’s competitors … ” [Huong Que, Inc. v. Luu, supra, 150 CA4th at 416, 58 CR3d at 540 (quoting Rest.3d, Agency, § 8.04) (emphasis added; internal quotes omitted)]. Cal. Prac. Guide Employment Litigation Ch. 14-A.
What is the law?
“Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” [Cal. Lab.C. § 2860 (emphasis added)]. “An employee who has any business to transact on his own account, similar to that entrusted to him by his employer, shall always give the preference to the business of the employer.” [Cal.Lab.C. § 2863 (emphasis added)]. Cal. Prac. Guide Employment Litigation Ch. 14-A. Similarly, any profit made in breach of the employee’s duty of loyalty belongs to the employer. [See Rest.2d Agency § 403, comment “a”; see also Service Employees Int’l Union, Local 250 v. Colcord (2008) 160 CA4th 362, 371, 72 CR3d 763, 769—disgorgement of salary and benefits paid to faithless employee while secretly competing with employer]. Cal. Prac. Guide Employment Litigation Ch. 14-A
We have represented clients in matters involving allegations of a breach of the duty of loyalty, both on the Company side and the employee side.
If you are being threatened with breach of the Duty of Loyalty or believe that you have claims against a current or former employee for a breach of the Duty of Loyalty, it is important to act quickly. Please contact us today to start a conversation.