Do Your Employees Understand Their Duty of Loyalty?

Author: A. Howard Metro Date: 04/26/2017

Categories: Business Startups, Employment Law & Litigation

All of your employees are subject to an array of implied common law duties. This includes the “duty of loyalty” which requires an employee to serve his or her employer faithfully and refrain from knowingly or willfully acting to harm the business. It also requires the employee to refrain from conflicts of interest with the employer. The duty of loyalty protects you, as the employer, and is a powerful enforcement instrument.

Most employees are unaware of this obligation because employers seldom emphasize them. Unless you communicate them to your employees on a regular basis, they may not understand the obligations and will be unaware of how their behavior conflicts with this duty.

Just as the majority of people who pull images or other content from websites do not realize that they may be violating artists’ copyrights, the same is true of employees who take opportunities from the employer and capitalize on them for their own benefit. You must make it clear that all employment opportunities related to the business belong to the business and may not be used by the employee during off-hours for his/her own benefit. We recommend that you specifically inform your employees in writing in an employment manual that it is a grounds for termination if they take a business opportunity provided to them as employees and pursue it on their own.

Throughout the employment relationship, you have other opportunities to remind employees of their obligations. You can distribute a list of duties during employee reviews or post them in a conspicuous place. Certainly, your employee manuals and written employment agreements or offer letters should contain this information. While you should use general statements applicable to all employees, you should also consider tailoring additional statements to the specific requirements of your business commensurate with the job responsibilities of your employees. Where the employee has access to proprietary information regarding processes and procedures developed in your business, it is vital that you advise the employee of the confidential nature of the information and the restrictions on its use.

Employment Agreements and Confidentiality Agreements are also used when employees are given access to customer information and opportunities.  If you fail to limit access to, and use of, confidential information you may lose the right to preclude others from using it.

You should provide these general statements to all employees upon commencement of employment and periodically thereafter:

You have a duty to act in the best interest of the company at all times.
You are responsible for ensuring that your conduct comports with the requirements established by the company.
Information regarding the company obtained during the course of your employment is confidential and proprietary and should remain confidential. Under no circumstances may any information be used for your own personal benefit.
No personal gifts may be received from clients or vendors. You must notify the company immediately if you are offered such gifts.
Contacts and business opportunities which you become aware of as a direct result of your employment belong to the employer and personal pursuit of any such opportunities after termination is a violation of the rights of the employer and the duty of the employee.

Your employees can have appropriate respect for the duty of loyalty only if you are committed to providing them with the standards of performance. Oral reminders on a regular basis, language on customer lists reminding users that they are the property of the employer, employment manuals, employment agreements and communication at the initiation of the relationship all create greater protection for your business.

Should you have any questions or wish to discuss these matters further, please contact A. Howard Metro by telephone at (301) 251-1180 or e-mail