In a recent case, the Eastern District of Virginia found in favor of former employees, holding they did not breach their duties of loyalty to their former employer. The court considered actions the employees took while still employed with the previous employer, but found those actions insufficient to sustain a breach of duty or tortious interference claim. This case can offer guidance to other employers considering whether conduct by former employees is adequate to establish similar claims.
Adnet v. Soni
In August 2016, the U.S. Army awarded a prime contract to Adnet, Inc., which was set to expire on August 31, 2020. Adnet hired Rohit Soni, Laura Barr, and Jason Laird to fill 3 positions under the contract. In October 2018, while employed by Adnet, Soni and Barr incorporated RoLaJa, and Laird agreed to help Soni and Barr find work for RoLaJa. In early 2020, the Army decided to transition the work under the contract to General Dynamics Information Technology, Inc. (“GDIT”).
Adnet submitted its initial pricing for a prospective subcontract with GDIT. In June 2020, Laird contacted GDIT on behalf of RoLaJa to discuss work under the new contract beginning September 1, 2020, and he submitted a capability statement for RoLaJa. Both Adnet and RoLaJa submitted proposals in response to GDIT’s RFP, but GDIT awarded the subcontract to RoLaJa. Adnet argued Soni, Barr, and Laird breached their duty of loyalty and engaged in tortious interference.
Breach of Duty of Loyalty
Adnet argues that defendants breached their fiduciary duty of loyalty when Laird contacted GDIT to express RoLaJa’s interest in securing work from GDIT and when RoLaJa competed against Adnet by responding to GDIT’s competitive RFP. In Virginia, the elements of a breach of fiduciary duty claim are (1) a fiduciary duty, (2) breach, and (3) damages resulting from the breach. The duty of loyalty is a fiduciary duty. The Virginia Supreme Court has previously held that “an employee, including an employee-at-will, owes a fiduciary duty of loyalty to his employer during his employment,” including a duty to not compete with an employer during employment.
The court here noted that, if there isn’t an employment contract restriction regarding this duty of loyalty, “an employee has the right to make arrangements during his employment to compete with his employer after resigning his post.” However, the employee’s right in such circumstances “must be balanced with the importance of the integrity and fairness attaching to the relationship between employer and employee.” The court explained that whether specific conduct taken prior to resignation breaches a fiduciary duty is decided on a case-by-case basis. Virginia Courts have distinguished arrangements for future employment or competition, which
are allowable from active solicitation of an employer’s current clients, which are not. Active solicitation alone is not enough, unless it is directed at current clients of the employer. Additionally, employees “must not have misappropriated trade secrets, misused confidential information, or solicited an employer’s clients or other employees prior to termination of employment.”
Here, as at-will employees of Adnet, Defendants owed a duty of loyalty to their employer. Defendants were preparing for work after their employment with Adnet was scheduled to end, with a set termination date. There is no evidence that Adnet told the Defendants that they would have a job with Adnet after that set date. Defendants worked to win a contract with GDIT that would only begin after their contractual obligations to Adnet had been fully performed.
The court here also explained that “even if Adnet could demonstrate that defendants were engaged in active solicitation, rather than preparation for future employment or competition, Adnet has not shown that the active solicitation was aimed at a current client, as GDIT had no existing relationship with Adnet.” Since Defendants here were not engaged in active solicitation of Adnet’s current clients and were only preparing for work after completion of their employment with Adnet, the court here held Defendants’ actions did not violate the duty of loyalty under Virginia law.
Tortious Interference with a Business Relationship
To establish a claim of tortious interference with a business relationship a plaintiff must show (1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferon; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted.
To show a valid business expectancy, the plaintiff must establish a “probability of future economic benefit.” A mere “possibility” that a future economic benefit will accrue or a plaintiff’s belief and hope that a business relationship will continue is insufficient. Here, Adnet failed to establish the existence of a valid contractual relationship or business expectancy with GDIT, since there was no course of dealing or business history between Adnet and GDIT that would establish a probability of a future award. Since there is a lack of an established relationship between GDIT and Adnet, there is no evidence in the record that demonstrates a probability of a business expectancy that would have resulted in a guaranteed award of the contract to Adnet. Thus, Adnet failed to establish tortious interference.
What Does Adnet v. Soni Mean for Employers?
Here, the court considered whether or not the actions of former employers, taken while still employed, breached a duty of loyalty to that employer. In making this determination, the court discussed what actions by employees are allowable and which are not. While the court did note that whether specific conduct taken prior to resignation breaches a fiduciary duty is decided on a case-by-case basis, the court’s discussion and ultimate findings here can still offer guidance to other employers dealing with similar scenarios.
Here, the court specifically noted that, provided there isn’t an employment contract providing otherwise, an employee has the right to make arrangements during his employment to compete with his employer after his employment has ended. However, the court also stated that employees cannot misappropriate trade secrets, misuse confidential information, or solicit an employer’s clients or other employees prior to termination of employment.” The court specified that arrangements for future employment or competition are allowable, but active solicitation of an employer’s current clients is not. The court here also stressed that active solicitation by an employee alone is not sufficient. To violate a breach of duty, the employee must actively solicit current clients of the employer. Under this standard, actions taken by employees to prepare for future employment, including solicitation of individuals that are not current clients of their current employer is allowable under Virginia law. Moreover, employees can take actions during employment to compete with their former employer after the employment relationship has ended, provided other violations do not occur, such as misappropriation of trade secrets or misuse of confidential information.
Part of this consideration may include whether or not the former employer has a valid business expectancy with the client being solicited. For a business expectancy to exist, there must be a “probability of future economic benefit” and not just the “possibility” that a future economic benefit will accrue or an employer’s belief and hope that a business relationship will continue. Here, Adnet failed to establish the existence of a valid business expectancy with GDIT, since there was no course of dealing or business history between Adnet and GDIT that would establish a probability of a future award. The court’s finding here stresses the importance of having a probability of future work with a client and not just hoping the business relationship will continue for such a claim to succeed.
If you need more guidance or information, contact the employment law experts at General Counsel, PC today at 703-782-3266. Attorneys at General Counsel, PC are specialized in labor and employment law and have experience working with business owners and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William.