The Duty of Loyalty You Owe Your Employer

This week, I sent an email that read something like this:

If you do you what propose to do, i.e., start a company on the side and bid for the same contract your current employer is bidding on, while still an employee of the company, you will be in big fat trouble. The kind of trouble that costs hundreds of thousands of dollars trouble. You will get fired. You will get dragged to court. You will lose, and no, capitalism doesn’t protect you, nor does the fact that Virginia is a right to work state. Please reconsider.

Total side bar – if you think “right to work” somehow protects you from your non-compete, please, Google it. See Michigan. Right to work has nothing to do with your non-compete. Nothing. I swear!

What could this employee have possibly contemplated that prompted such a strong message?

By starting a competing business while they were still employed at the company, they risked violating the a legal duty that employees owe their employers under Virginia law: the duty of loyalty.

Regardless of what an employment contract says, or doesn’t say, employees owes their company a duty of loyalty and therefore cannot, while an employee, act in such a way that competes with the company.

This means: no side businesses that compete; no telling existing clients you are going to leave and compete; no planning your new business at night and casually mentioning it to colleagues that they could hire you when you leave.

Every once in a while, some person who did not have the benefit of my counsel will breach this duty and does indeed end up in big fat trouble. It is not too late for us to help because we often represent employees and small companies in business competition litigation, but we would prefer to help you avoid liability.

Consider a recent Virginia case. An employee was found liable of breaching his duty of loyalty and the judge ordered he pay over $100,000 in damages. What did this fine fellow do? He set up a side company that competed with his employer and then diverted the work to himself. Plain and simple. He competed. He cheated the boss while still on the dole.

Folks don’t like being cheated, so be smart. If you are itching to be your own boss, save your money, quit, take a month off and then start your own thing. Don’t actively compete with your current company. Judges don’t like that. When employees do this, judges order them to pay money back. Sometimes, lots of money.

So remember one thing – you owe a duty of loyalty. Like a marriage. Don’t cheat. Nothing on the sides, and you will be ok!

Lauren Ellerman
Lauren Ellerman

In 2011, Lauren Ellerman was named "Young Lawyer of the Year" by the Roanoke Bar Association for her work in the community. To speak with Lauren about your personal injury case, contact her at lellerman@frithlawfirm.com.