What can be done if your competition is stealing your employees?

It’s a small world we live in especially when it comes to the industry we work in. My guess would be that you know who your competition is and probably the names of certain individuals who work for the competition. It’s not uncommon for employees to jump from job to job while staying in the same industry. What happens when competition actively recruits your employees? What happens if your own employees actively recruit from within to move to the competition while still working for you? Is there a remedy?

The answer is, possibly. In a recent Court of Appeals case in Tennessee, some of these issues were addressed. The background is that the competition (Defendant Company) actively recruited a long time manager of the Plaintiff Company. The basis of the lawsuit is that Plaintiff Company alleges that one of the Defendant Company’s employees, recruiter, contacted one of the Defendant’s employees about the possibility of working for Defendant Company if it opened a branch in Nashville. Plaintiff Company asserts that their employee was a manager and long-term employee of their Nashville office and was one of its top producing salesmen. According to Plaintiff Company, their employee breached his fiduciary obligations to Plaintiff Company by orchestrating and engaging in the solicitation and recruitment of several Plaintiff Company’s employees on behalf of Defendant Company while he was still employed by Plaintiff Company, causing Plaintiff Company to suffer damages. Plaintiff Company asserts that Defendant Company’s employees assisted, encouraged, induced, and instructed Plaintiff Company employee in his recruitment and solicitation efforts.

Breach of Fiduciary Duty and/or Duty of Loyalty

The parties agree that Plaintiff Company’s employee as well as the employees he allegedly solicited to leave Plaintiff Company were all employees at will and were not subject to non-compete agreements. The law in Tennessee, however, is that all employees owe their employer a duty of loyalty, regardless of whether they are at-will employees or have employment contracts:

During the employment relationship, an employee has a fiduciary duty of loyalty to the employer. The employee must act solely for the benefit of the employer in matters within the scope of his employment. The employee must not engage in conduct that is adverse to the employer’s interests.

An employee who solicits his or her coworkers to leave their jobs to work for a competitor while the soliciting employee is still being paid by the employer is in violation of his or her fiduciary duty and duty of loyalty. With regard to damages, an employee who breaches his or her duty of loyalty may be required to return to his or her employer any compensation he or she received while engaging in conduct adverse to his or her employer‟s interests. Moreover, the employee may have to “disgorge any profit or benefit he [or she] received as a result of his [or her] disloyal activities.”

Aiding and Abetting Breach of Fiduciary Duty/Duty of Loyalty

Another remedy would to consider whether Plaintiff Company can proceed on it a claim against Plaintiff Employee and Defendant Company for aiding and abetting Plaintiff Employee in breaching his fiduciary duty/duty of loyalty. Tennessee recognizes a “common law civil liability theory of aiding and abetting,” which requires Plaintiff Company to prove that Defendant Company and Plaintiff Employee “knew that Plaintiff Employee’s conduct constituted a breach of duty, and that [the Defendant/s] gave substantial assistance or encouragement to [him] in [his] acts.”

Civil Conspiracy

A civil conspiracy is defined as:

“a combination of two or more persons who, each having the intent and knowledge of the other’s intent, accomplish by concert an unlawful purpose, or accomplish a lawful purpose by unlawful means, which results in damage to the plaintiff.”

Summary:

To sum it up, there are remedies. However, the burdens aren’t necessarily easy to prove. In the case at hand, it was remanded back to the trial court to address these issues. This is a situation that happens all too often and for the most part, goes unchecked. As an employer, it is important to know what your remedies are if you get in this situation. There are other remedies that are beyond the scope of this article.

Will Cartwright

Cartwright Law, LLC

www.cartwrightlawllc.com

Citations:

Ram Tool & Supply Company v. HD Supply Construction, No. M2013-02264-COA-R3-CV (Tenn. Ct. App. July 21, 2016)

FTA Enters., Inc. v. Pomeroy Computer Res., Inc., E2000-01246-COA-R3-CV, 2001 WL 185210, at *4 (Tenn. Ct. App. Feb. 12, 2001); ProductiveMD, LLC v. 4UMD, LLC, 821 F. Supp. 2d 955, 964 (M.D. Tenn. 2011).