Have You Reminded Your Employees of the Duty of Loyalty?

Author: A. Howard Metro Date: 11/17/2009

Categories: Corporate and Business Law, Employment Law & Litigation

All employees are subject to an array of implied common law duties arising from the unwritten contract requiring the employer to pay wages in exchange for the employee’s performance. While the duty of loyalty provides protection for the employer as well as a powerful enforcement instrument, it is often overlooked and ignored. Too often employees today do not connect their responsibility to the employer because it is never defined. Employees are generally naïve and will remain so unless the implications of the duty of loyalty and unacceptable behaviors are specifically explained.

The duty of loyalty requires that the employee serve the 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. Most employees, however, are unaware of these obligations because they are seldom emphasized. Unless the employer communicates on a regular basis the parameters of these obligations of the employee, an employee may not understand the obligations and will be unaware of how his or her behavior conflicts with this duty.

Just as the overwhelming majority of the population downloading songs from Napster a few years ago did not realize they were violating artists’ copyrights, the same is true of employees who take opportunities from the employer and capitalize on the opportunities for their own benefit. It is necessary to communicate that all employment opportunities related to the business belong to the business and may not be performed by the employee during off-hours. We recommend that you specifically inform your employees orally at the interview and in writing in an employment manual that it is a grounds for termination (and termination of benefits such as the right to continuing health care coverage) if an employee takes a business opportunity provided to him as an employee and pursues it on his own.

Throughout the employment relationship, there are other opportunities to remind employees of their obligations. A list of employee duties may be distributed during employee reviews or posted in a conspicuous place. Certainly, employee manuals and written employment agreements or offer letters should contain this information. While general statements applicable to all employees should be used, 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 valuable information regarding processes and procedures developed in your business, it is vital that the employee is advised of the confidential nature of the information and the restrictions on its use. If you fail to limit access and use of confidential information, you may lose protection from its use to a former employee.

The following general statements should be provided to all employees upon employment and periodically thereafter:

  1. You have a duty to act in the best interest of the company at all times.
  2. You are responsible for ensuring that your conduct comports with the requirements established by the company.
  3. 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.
  4. No personal gifts may be received from clients or vendors. You must notify the company immediately if you are offered such gifts.
  5. Contacts and business opportunities which you become aware of as a direct result of your employment belong to the employer so long as you accept wages from the employer and pursuit of any such opportunities after termination is a violation of the rights of the employer and the duty of the employee.

Only if an employer is committed to provide the employee with the standards of performance may an employee properly have an appropriate respect for the duty of loyalty. Oral reminders on a regular basis, language on customer lists reminding users that it is the property of the employer, employment manuals, employment agreements and communication at the initiation of the relationship all creates 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.