Imagine: An employee leaves and sets up shop, using your documents, your methods, your ideas and worse yet, your customers. Maybe it is not hard to imagine. Maybe it has happened to you. Many business owners feel that they need to have an employment contract or a non-compete agreement to rein in employees who strike out on their own. While contractual protections are great, they are not the only legal weapons in an employer’s arsenal. As an employer, you are owed certain legal duties from your employees that the law provides. When an employee breaks those duties, that person can be sued for damages, or even enjoined (restrained by the court) to protect you and your business.
Duty of Loyalty
The law imposes upon most all employees a duty of loyalty. This means that an employee cannot compete against you while on your payroll. Unfortunately, this happens often. The employee quietly builds his own business while enjoying the steady paycheck that you provide. Once his new venture is up and running, the employee hops from one safe lily pad (your business) to the other safe lily pad (his new business—and your new competitor). Even worse, the employee may be soliciting your customers and clients to come on board with him while he or she is still employed with you. While the employee is supposed to be working for you, the employee is really working for himself.
Timing Is Everything
It is important to note that the employee may be in the clear, and therefore not liable for any wrongdoing, depending on when he or she began building the business. The law allows for an employee to take certain preliminary steps in beginning the new venture while still being under your employ. This means the employee can move forward with the beginning stages in forming a business, such as obtaining a business license, filing documents with the State, or procuring a location. An employee cannot, however, start hustling his or her own work by making phone calls, contacting clients, or actually doing work, while under your employ.
Depending on how the employee goes about setting up business, he or she can be subject to a number of claims in a lawsuit. For instance, if the employee makes untrue statements that are disparaging about you or your business, he or she can be sued for defamation. If the employee combined with others for the purpose of damaging your company, they can be held liable under the Virginia Business Conspiracy Act, subjecting them to additional damages and attorneys’ fees. If the employee used a computer to download your forms or documents to help start this new company, he or she can be sued under the Virginia Computer Crimes Act and can also be held liable for conversion (i.e., civil theft).
Employees who strike out on their own should be forewarned. How one goes about leaving his current employer and setting up a new business can be tricky. And, as said above, timing is everything. Likewise, employers should know that they have several arrows in their quiver when an employee goes rogue and leaves a path of destruction in his or her wake.