Employee’s Duty of Loyalty in Virginia

The workplace has changed over the past few decades. Employers and employees are not as loyal to each other. Fewer employees are spending their entire career with the same employer. The marketplace is dynamic – entrepreneurship is increasing, as are technological changes.

These societal changes have led to an increase in litigation involving employers suing employees who have left the company.

Virginia law seeks to protect employers from employees’ harmful activities. Often employers are able to recover when an employee’s wrongful act results in the employer suffering an economic loss. Courts have attempted to strike a balance between an employee’s right to seek out and maintain their own livelihood and an employer’s right to expect loyalty from its employees.

This article addresses the duty of loyalty that employees owe their employers, as well as what happens when that duty is breached.

Employee’s Duty of Loyalty

Under the common law an employee owes a duty of loyalty to his or her employee. An employee may also owe a fiduciary duty to his employer when he is placed in a position of trust with the employer. Often we see discussions of an employee’s fiduciary duty in cases involving officers, directors, or management.

Community Counselling Service, Inc. v. Reilly, 317 F.2d 239 (4th Cir. 1963) is an important case addressing an employee’s duty of loyalty in Virginia. In Reilly, the defendant, a regional sales representative for Community Counselling Service, entered into agreements with the employer’s clients before he resigned to start his own company. Community Counselling Service filed suit, alleging that Reilly breached his duty of loyalty to the company by promoting his own interests prior to resigning.

The court stated that an employee may compete with a former employer after his termination, so long as there is not a non compete agreement and the employee does not use trade secrets or other confidential information. Reilly, however, decided to compete wit[the his former employer while still employed. The court held that, “when, during his employment, [the employee] solicited the business of the three parishes for himself, he was untrue to his employment obligation and was disloyal to his employer.” The court further stated:

Employment as a sales representative demands of the employee the highest duty of loyalty. it is not without its difficulties when the employment continues after the employee has arrived at a fixed determination to leave his employment, for then his interests and those of his employer have lost their identity and may become conflicting. Until the employment relationship is finally severed however, the employee must prefer the interests of his employer to his own. During such a period, he cannot solicit for himself future business which his employment requires him to solicit for his employer. If prospective customers undertake the opening of negotiations which the employer could not initiate, he must decline to participate in them. Above all, he should be candid with his employer and should withhold no information which would be useful to the employer in the protection and promotion of its interests.

The court awarded damages to Community Counselling Services.

Feddeman & Co. v. Langan Associates, 260 Va. 35, 530 S.E.2d 668 (2000) is another important case addressing an employee’s duty of loyalty in Virginia. In Feddeman, a large group of employees resigned from Feddeman & Co. and joined Langan Associates. Feddeman & Co. filed suit, alleging that the employees breached their duty of loyalty by planning their departure and using confidential information to persuade clients to leave.

The jury returned a large verdict. But the circuit court set aside the verdict. The Virginia Supreme Court reinstated the verdict, however, finding that:

Here, the employee and director defendants met and formulated a plan to resign en masse if Kent Fedderman rejected their buyout offer, knowing that a resignation or walk out by all of them would “be devastating to: the corporation. The plan included anticipation of future employment with Langan Associates, a rival business, and such future employment included securing plaintiff’s clients and employees as clients and employees of Langan Associates.

In other words the court found that the defendants were actively formulating a plan to leave the employer and, by doing so, breached their fiduciary duty.

Over the next few weeks we’ll take a look at other Virginia cases addressing an employee’s duty of loyalty. Contact Virginia noncompete lawyer and employment attorney Corey Pollard for a consultation. We represent clients in Richmond, Hampton Roads, Roanoke, and Northern Virginia.