DUTY OF LOYALTY

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 take advantage of our FREE online case submission or call us today to start a conversation.

Contact Us

CASE STUDIES

Exclusive sell side counsel to largest pain management practice in the Bay Area in its sale to private equity-backed consolidator.

TYPE

Sale Transaction

TRANSACTION VALUE

~$15,000,000 to $20,000,000 with earn-outs

Represented Plaintiff, a minority shareholder and former senior level employee of very successful privately-held company, in dispute alleging wrongful termination and corporate claims.

RESULT

Settled low to mid 6 figures

TIME TO RESOLUTION

3 months

HOW WAS CASE RESOLVED?

Attorney to attorney negotiation

General counsel to largest pain management practice in the San Francisco Bay Area (2004-2012)

TYPE

General Counsel

SUBMIT YOUR MATTER TO US

CONTACT US TO SCHEDULE TIME TO CONSULT WITH A LAWYER

Need help on a major transaction? Someone to watch over your litigation? Business advice? Evaluate a document? Submit your matter for free. All information submitted is treated confidentially to the fullest extent of the law.

CONTACT US

BLOG

THE LATEST NEWS& UPDATES
  • Real Estate Leasing
  • |
  • May 28, 2020

SB 939 Alters The Terms of Commercial Leases

  • General
  • |
  • May 19, 2020

COVID-19: California Resources

  • Employment
  • |
  • Feb 03, 2020

Federal Judge Extends Restraining Order Preventing Ban on Employment Arbitration Agreements (AB51)