When a former employee uses inside information to undercut their employer, it may provide the basis for a lawsuit. In a recent decision, the Fourth Circuit evaluated when and in what manner it is appropriate under Virginia law for an employee to compete against their employer. In Adnet, Inc. v. Soni et al., the court considered whether employees who bid against their employer breached a duty of loyalty, or committed tortious interference with contractual relations.
Adnet, a technology company, sued its former employees for competing against them. Adnet’s software contract with the Army was about to expire without an option to renew. Adnet learned that GDIT would be awarded the contract and was in discussions to serve as subcontractor for the technology services. Two employees and an independent contractor for Adnet learned of the negotiations and formed an LLC called RoLaJa to compete for the contract. These employees contacted GDIT, unsolicited, to submit a bid of their own. When GDIT determined that RoLaJa was qualified they initiated a competitive bidding process. The RoLaJa bid was less than the bid submitted by Adnet, and GDIT ultimately awarded RoLaJa the contract.
Adnet sued these employees under Virginia law for breach of the duty of loyalty, tortious interference with a business relationship, and business conspiracy. The district court granted summary judgment for the defendants. However, on appeal, the Fourth Circuit remanded finding sufficient evidence for a jury trial. This case provides insight into the type of evidence, which if present, can sustain a jury trial for each of these claims.
Duty of Loyalty
In Virginia, all employees owe a duty of loyalty to their employers during the term of employment. Williams v. Dominion Tech. Partners, L.L.C., 576 S.E.2d 752, 757 (Va. 2003). Within this duty, an employee may not compete with their employer while employed. Id. Traditional forms of breach include misappropriation of trade secrets, misuse of confidential information, or soliciting an employer’s clients or employees before employment ends. Id. However, in Adnet the court held that these three situations were not exhaustive, and an employer can prove of breach of the duty of loyalty through other circumstances on a case-by-case basis. In Adnet the employees were in direct competition with their employers during the bidding process. This was determined to be sufficient for a jury trial.
If an employee is competing against your business, while still employed, it may give rise to a claim of breach of the duty of loyalty. The three traditional circumstances are when an employee misappropriates trade secrets, misuses confidential information, and solicits an employer’s clients or employees while still employed. Employees cannot have one foot out the door working on their next venture while using company resources to do so.
Tortious Interference with Contractual Relations
To establish tortious interference with a business relationship in Virginia, the plaintiff must prove: (1) the existence of a business relationship or expectancy, with a probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship or expectancy; (3) a reasonable certainty that absent defendant’s intentional misconduct plaintiff would have continued in the relationship or realized the expectancy; and (4) damage to the plaintiff. Williams, 576 S.E.2d at 757. Proving a probability of future economic benefit is essential in establishing the first and third elements. Hope and belief that a relationship will continue are not enough to establish a future economic benefit. L-3 Commc’ns Corp. v. Serco, Inc., 926 F.3d 85, 94 (4th Cir. 2019). Statements from a deciding individual which indicate the likelihood of a continued business relationship is strong evidence of future economic benefit.
In Adnet, the prime contractor made statements indicating that Adnet would be awarded the contract. Additionally, but for the employees undercutting Adnet’s bid, it would not have been a competitive bidding process, and GDIT was likely to award Adnet the contract. If you have a business relationship with a probability of future economic benefit, known to your employees, and an employee intentionally interferes with that relationship causing damages, those employees may be liable for tortious interference. If this happens to your business, it would be prudent to save all documentation showing that you have a business relationship with a probability of future economic benefit to your company and any evidence of the employee’s interference. Evidence of this type is crucial in prevailing on a claim of Tortious Interference with Contractual Relations.
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