Duty of Loyalty

What is the Duty of Loyalty?

Duty of LoyaltyEmployees who work in New York and New Jersey have a legal “duty of loyalty” to their employers. In general, this means you cannot do something that is contrary to the interests of your employer until after your employment relationship is over. If you violate your duty of loyalty to your employer, it not only could fire you but it potentially could sue you for money damages.

There are numerous ways an employee can breach his duty of loyalty. Examples include misusing your employer’s confidential or proprietary information, using the company’s resources for your own benefit, making disparaging or negative statements about the business, or otherwise harming your current employer.

Prohibition Against Working for a Competitor

One key restriction imposed by the duty of loyalty is that even if you have not signed a non-compete agreement you probably cannot work for a business that competes with your current employer until after your employment relationship ends. For example, you cannot open a business that sells the same products as the company for which you are working without your employer’s permission. It also generally means you cannot work for two competing companies at the same time without permission from both of the companies.

Of course, the duty of loyalty does not prohibit you from searching for a new job, interviewing, or accepting a job offer from a competitor as long as you do not start your new job until after you leave your current job. Likewise, it does not prevent you from taking steps to establish a competing business. For example, you can file the paperwork to form a corporation, sign an office lease, create a business plan or develop a website.

However, you cannot actually advertise or make efforts to provide any goods or services on behalf of your new business.  You also cannot perform any activities to find a new job or open a new business during your working hours or use your current employer’s equipment, property or resources.

Working for another employer in violation of the duty of loyalty can have serious repercussions.  Aside from being responsible for any actual damages caused, at least in some situations an Employee Can Forfeit Salary he or she received from a competitor.

Prohibitions Against Poaching Employees

Similarly, even if you have not signed a non-solicitation agreement you cannot attempt to hire someone who works for your current employer to work for a competing business until after you end the employment relationship. For instance, if you are planning to open your own business you cannot offer a job to one of your coworkers until after you have resigned and no longer work for the company.

Other Prohibitions

The duty of loyalty also prohibits you from taking potential business opportunities for yourself or for a competing business rather than providing them to your current employer. Likewise, you could violate your legal obligations to your employer if you chose not to tell your company about such an opportunity. It even could violate your legal obligations to your employer if you stop working as hard because you plan to leave to work for a competing business.

Continued Responsibility After You Resign

Although the duty of loyalty primarily applies while you are working for your current employer, you continue to owe a limited duty to your former employer after you stop working for it. For instance, you have an ongoing obligation not to use your prior employer’s trade secrets or confidential or proprietary information. For more information, you may want to read our article: New Jersey Passes Trade Secrets Act.

Of course, if you signed a restrictive covenant such as a non-compete or non-solicitation agreement, those restrictions are likely to continue after you have left your job as well.