In a recent case, the U.S. District Court for the Western District of Virginia denied the employee’s motion to dismiss and determined that multiple claims could proceed against an employee, including breach of contract, breach of duty of loyalty, and fraud. In this case, the employee and employer entered into an Employment Agreement stating the employee would disclose any conflicts of interest with his employer. When the employee entered into outside contracts and failed to disclose those conflicts of interest, the court determined he breached his Employment Agreement, as well as his duty of loyalty to his employer.
Gordon v. Blue Mountain Therapy, LLC.
In Gordon v. Blue Mountain Therapy, LLC., Jarel Gordon began working for Blue Mountain Therapy, LLC (“BMT”) in April 2017 and they entered into an Employment Agreement. Under the Agreement, Gordon was required to “declare any and all potential conflicts of interest” at the time he signed the agreement and future conflicts “as they arise.” The agreement specified that “conflicts” include “taking steps to start a competing company or ownership interest in, or operation of, any contract therapy agency or contract therapy-related operation, or any relationship whether personal or professional which would impair [Gordon’s] ability to devote his . . . full efforts and loyalty to Blue Mountain.” The agreement also stated that Gordon’s failure to declare a conflict would result in immediate termination.
In an email to the president of BMT, Gordon stated that he was “not seeking other contracts” outside of his role with BMT. However, Gordon entered into a contract with an outside party to perform services similar to those he provided as an employee of BMT. Gordon didn’t inform BMT of the business opportunity or disclose the conflict after he entered into the contract. BMT learned of Gordon’s services for the other party and terminated Gordon. BMT filed suit alleging multiple claims, including multiple breaches of contract, breach of the common law duty of loyalty, and fraud.
The court found that Gordon breached his Employment Agreement with BMT by “entering into contracts with a school system or third parties to provide therapy services that Gordon could have provided as an employee of BMT” and thereby creating a conflict of interest he failed to disclose, as required under the Employment Agreement. In Virginia, for a plaintiff to establish a breach of contract claim, he must show: (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation. The court noted that the Agreement “plainly bars Gordon from competing with BMT and from incurring conflicts of interest.” Since BMT plausibly alleged that Gordon secretly entered into side deals for his own benefit, the court denied the motion to dismiss.
The court similarly found that these facts established that Gordon breached the common law duty of loyalty he owed to BMT. The Supreme Court of Virginia has previously held that “under the common law an employee, including an employee-at-will, owes a fiduciary duty of loyalty to his employer during his employment,” including the more specific duty that the employee does not compete with his employer during his employment.” Moreover, under the Corporate Opportunity Doctrine, “a corporate officer or director is under a fiduciary obligation not to divert a corporate business opportunity for personal gain because the opportunity is considered the property of the corporation.” The court determined BMT plausibly alleged Gordon breached his duty of loyalty and the corporate opportunity doctrine.
The court also upheld BMT’s fraud claim, because it determined BMT plausibly alleged that Gordon falsely assured BMT he was not pursuing outside contracts for his own benefit and that BMT reasonably relied on that misrepresentation to its detriment.
What Does Gordon v. Blue Mountain Therapy, LLC. Mean for Employers?
Employers should review their employment agreements and consider adding a provision that an employee has a duty to avoid and disclose conflicts.
If you need more guidance or information, contact the employment law experts at General Counsel, PC today at 703-991-7973 or firstname.lastname@example.org. Attorneys at General Counsel, PC are specialized in labor and employment law and have experience working with business owners and individuals across Virginia.