Ahh, February. Once again, love begins to spring eternal, resulting in a collision between our sense of “wallet clamp” and socialized obligatory romanticism. Last year at this time, my column railed against the manifestations of love when they infected the workplace (see “Hot for…Coworker?” Feb. 2008). This year, I warn against the opposite, for there are those with cheating hearts amongst you.
I’m not talking about the sordid affair between boss and underling, the storylines of which have the makings of a Harlequin novel.1 This type of cheating is born not of passion or lust, but of greed and disrespect. I’m talking about your employee who, while you’re reading this article, is using your resources, time and contacts to prepare a competing business—all while accepting a paycheck.
Preposterous, but true. Some employees out there give little regard to their legal obligations to their employer. For whatever reason—dissatisfaction, disenchantment or a belief that the “grass is greener” somewhere else—some decide to compete. The problem is, sometimes these employees don’t leave first and then attempt to start their own business. Instead, they stay at your workplace and use the paycheck you provide as a financial crutch, all the while spending their time building relationships with your customers until they’re up and ready to run. And, while employees certainly have the right to leave and compete, and can even take some preparatory steps to do so, they also have certain duties to you as their employer. These duties are loyalty and, for higher-ranking employees (upper management, officers and directors), a fiduciary duty.
Courts have outlined some of the proper methods for employees who intend to compete. While they may make initial preparations, they must still put the business of the employer before their own soon-to-be venture. Employees also cannot take steps designed to impair the business of their soon-to-be-former employer, such as destruction of information, taking confidential information belonging to your company, solicitation of employees to depart with them or pretermination contact with customers designed to divert business opportunities that would otherwise flow to your company. Each of these prohibitions seems quite sensible. But for some, the chance to get a head start in their business can prove too great a temptation to resist.
As a result, employers can find themselves blindsided by an employee’s announcement that he or she is quitting, followed by announcements from fellow employees (or customers) that they’re leaving to follow. Sometimes, employers get no notice at all, instead returning to find an emptied desk and a laptop devoid of any contents whatsoever. Shortly thereafter, the company inevitably struggles with questions about how this occurred without detection and what it can do about it.
As with most problems, an ounce of prevention (or in this case, detection) is worth a pound of cure. The first approach is to foster an environment that engenders employee loyalty. By making those employees who are most capable of effectively competing with you feel appreciated, your organization can decrease the feelings that can lead to an unethical or disloyal departure.
But as any business owner or organization knows, not all good deeds go unpunished. It sometimes takes only one bad apple to spoil the bunch.2 To protect against those employees who fear the stick more than they desire the carrot, a company should implement policies and practices designed to deter such behavior. You can use confidentiality agreements, property ownership policies, technology monitoring policies and other practices to deter employees from using your resources, technology or data to get a head start in competing with you.
In addition, you need to be alert. Abdicating day-to-day operational control to key employees, and running your business as an “absentee owner,” is a recipe for potential disaster. Finally, keep watch for the telltale signs that an employee is heading out the door: lack of communication, withdrawal, lack of candor or openness about business dealings, failure to provide information that would normally be provided, increased customer/client contact without you, change in hours kept, excuses for absences and hush-hush meetings with other employees.3
Employers that experience a combination of these signals may find that employees—especially more business savvy, competitive or entrepreneurial employees—are making plans to depart. In the face of this type of conduct, early intervention (through either sleuth or direct discussion) can help clear the air and let you orchestrate a departure that’s orderly and above board.
Sometimes, even the best laid plans of mice and men are insufficient to keep dishonest employees honest. When this happens, and an employee violates his or her fiduciary duty or duty of loyalty to start a competing business, your organization does have remedies. Depending on the exact acts of the former employee(s), litigation can be initiated under a number of theories, and damages can be assessed. They can range from repayment of wages for the period when loyalty was breached, to actual damages caused by unfair competition or misappropriation of trade secrets, to civil and criminal penalties for destruction of computer data. But, as with most employment litigation, such suits often result in “good money chasing bad” as the cost of litigation could easily dwarf your ultimate recovery.
So, while Cupid’s arrows hopefully fill your heart (at least until you fulfill your Valentine’s Day obligations), be careful to make sure you know which employees might be attempting to stab you in the back.
1 Or, if you’re a former governor of Arkansas, the makings of a presidential blunder!
2 My New Year’s resolution was to see how many clichés I could get into one column. Hold on, I’m just warming up!
3 You can also watch your employees as they read this column (you do require them to read it, right?) If they are sweating and shifting in their seats, you either have a poorly temperature controlled room with bad seating, or . . ..
This column is not intended as legal advice, nor is it intended to form an attorney-client relationship with the author. You should consult your own counsel for the purposes of receiving legal advice regarding any of the issues raised in this column.
